REGULATION

ON

BUSINESS DELEGATION OF FINANCIAL

INSTITUTIONS

Regulation on Business Delegation of Financial Institutions

CONTENTS

§1.	Purpose

§2.	Definitions

§3.	Business Delegation

§4.	Report

§5.	Recommendation of Amendment

§6.	Exclusion from Application

§7.	Detailed Matters

Addenda

Enacted on January 14, 2000

§1. Purpose

The purpose of this regulation is to prescribe permissible scopes and detailed procedures for delegating the business of a financial institution, which has been originally authorized, permitted, or registered to conduct (hereinafter, authorization or being authorized according to the context) by the financial institution

§2. Definitions

A financial institution in this regulation shall be defined as one of the following subparagraphs:

1. Financial institutions established by the Banking Act;

2. Credit business sector of the National Agricultural Cooperatives Federation under the Agricultural Cooperatives Act;

3. Credit business sector of the National Federation of Fisheries Cooperatives and its member cooperatives under the Fisheries Cooperatives Act;

4. Credit business sector of the National Livestock Cooperatives Federation under the Livestock Cooperatives Act;

5. The Industrial Bank of Korea under the Industrial Bank of Korea Act;

6. Trust companies under the Trust Business Act;

7. Mortgage-backed securitization companies under the Mortgage-Backed Securitization Company Act;

8. Mutual savings companies under the Mutual Savings and Finance Company Act;

9. Merchant banks under the Act Concerning Merchant Banking Business;

10. Credit-extension specialized financial companies under the Credit-Extension Specialized Financial Business Act;

11. Insurance companies under the Insurance Business Act;

12. Securities companies under the Securities and Exchange Act;

13. Investment management companies under the Securities and Investment Trust Business Act;

14. Futures trading companies under the Futures Trading Act;

15. Credit unions and their Associations under the Credit Union Act;

16. Other institutions or persons engaging in financial business and finance- related business as determined by the Governor of Financial Supervisory Service (hereinafter, the Governor)

§3. Business Delegation

(1) A financial institution shall not delegate its authorized business to a third party. However, this shall not be applied to the segment of the authorized business, which is neither essential nor subject to critical decision-making in terms of business methods or procedures.

(2) The term 'essential' mentioned in the proviso of paragraph (1)p shall be under one of the following subparagraphs, and the major examples are elaborated in the appendix table.

1. In case where the segment is regarded as core in the business in terms of the authorization perspective. Thus, if delegated to a third party, the third party may be regarded as authorized.

2. In case where the delegation results in a serious impact to the soundness and credibility of either a delegating institution or other institutions.

3. In case where it is inappropriate to impose responsibility and risk arising from business on a third party

4. In other cases where delegation is forbidden due to the regulatory policy and financial transaction order from the Financial Supervisory Commission  (hereinafter, the FSC) or the Governor

(3) In case where an institution delegates its business to a third party pursuant to the proviso of paragraph (1), the delegated business shall be handled appropriately after considering followings.

1. The cost and benefit analysis of business delegation

2. Damages to consumers and disorders of the financial system

3. Matters of whether or not business delegation being permissible under the related statutes, especially regarding delegates

4. Matters of whether or not delegates being able to conduct the delegated business appropriately

5. Matters of whether or not the delegation being contrary to related laws such as the Act on Real Name Financial Transactions and Guarantee of Secrecy

§4. Report

(1) When delegating its business to a third party pursuant to the proviso of Article 3 paragraph (1), a financial institution shall report thereon to the Governor without any delay, attaching documents of followings

1. A copy of the contract deed relating to the delegation

2. Copies of reviewing opinions and related documents under each subparagraph of Article 3 paragraph (3)

3. The necessity of a business delegation and its expected effect

4. Major changes of handling business from delegation

(2) A financial institution needs not report to the Governor in case where contents of the report pursuant to paragraph (1) are falling under one of following subparagraphs.

1. In case where the type of business and contents is closely related to case reported to the Governor by that institution or other institutions in the same category

2. In case where the institution has already reported to the Governor on the prospective delegation when reporting relevant standard contract terms and conditions (limited to the case of submitting documents attached pursuant to paragraph (1))

3. In case of changing part of reports which have already been reported to the Governor, whose changes are insignificant

(3) Irrespective of paragraph (1), a financial institution shall report to the Governor with each document of paragraph (1) seven working days before a contract of delegation, when it intends to make the contract with entities that are conducting financial business but are not financial institutions under Article 38 of Act on the Establishment of the Financial Supervisory Authority.

(4) The Governor shall report to the FSC every quarter on the state of business delegation reported by financial institutions pursuant to paragraphs (1) and (3).

§5. Recommendation of Amendment

The Governor may, when judging that the delegation is not appropriate to Article 3 paragraph (2) and (3), take necessary measures, such as recommending amendment to the institution. In this case, the Governor shall report the results thereof to the FSC without any delay.

§6. Exclusion from Application

This regulation may not be applicable to cases where a financial institution delegates its business legally to a third party in accordance with related financial statutes.

§7. Detailed Matters

The Governor may determine detailed matters necessary for implementing this regulation.

Addenda

§1. Enforcement Date

This regulation shall be offective on the date of January 17, 2000.

§2. Transitional Measures

Any financial institution which gave or got delegation of powers stipulated in this regulation before the enforcement date shall be deemed as having conducted in accordance with this regulation.

§3. Abrogated provisions

The following provisions are to be abrogated simultaneously with the enforcement of this regulation.

1. Article 16 of the Banking Supervisory Regulations, and Article 12 of its Detailed Enforcement Regulations

2. Article 80 of Detailed Enforcement Regulations on the Supervision of Credit-Extension Specialized Financial Companies.