REGULATION

ON

SUPERVISION OF MORTGAGE-BACKED

SECURITIZATION COMPANIES

Regulation on Supervision of Mortgage-Backed Securitization Companies

CONTENTS

I.	General Provisions

§1.	Purpose

§2.	Scope of Equity Capital

§3.	[Deleted]

II.	Guidance For Sound Management

§4.	Management Guidance Ratios

§5.	Asset Soundness Classification

§5-2.	Assets Subject To Classification

§5-3.	Loan Loss Provisioning Standards

§6.	Risk Management

§7.	Accounting Principles

§8.	Monthly and Annual Reports

§9.	Management Improvement Measures

§10.	Public Disclosure of Management Performance

III.	Protection of the Rights and Interests of Investors

§11.	[Deleted]

§12.	Disclosing the Terms and Conditions of MBS Transactions

§13.	[Deleted]

§14.	Prohibition against Unsound Business Practices

IV.	Supplementary Provisions

§15.	Approval of Holding Position or Occupation Concurrently by Directors and Employees

§16.	[Deleted]

Addenda

Enacted on August 6, 1999

Amended on January 29, 2001 FSC 2001-4

Amended on July 19, 2001 FSC 2001-47

CHAPTER I.

GENERAL PROVISIONS

§1. Purpose

The purpose of this Regulation is to prescribe details necessary for the enforcement of matters pertinent to the supervision of mortgage-backed securitization companies (hereinafter, "MBS companies") by the Financial Supervisory Commission (hereinafter, "the FSC"), stipulated under the Mortgage-backed Securitization Company Act (hereinafter, "the Act") and its enforcement decree (hereinafter, "the Decree"), the Act concerning the Establishment of the Financial Supervisory Organizations and its enforcement decree, and any other relevant statutes thereof.

§2. Scope of Equity Capital

(1) Equity capital pursuant to provisions under Article 2 paragraph (2) of the Act and Article 2 of the Decree is produced by subtracting the items of deduction from core capital and supplementary capital, on the basis of an individual financial statement of an MBS company.

(2) The scopes of core capital, supplementary capital and deductions under paragraph (1) are set forth in Appendix Table 1, and the limit of supplementary capital being recognized as equity capital follows the calculation method of equity capital as stipulated in Article 4 paragraph (2).

§3. [Deleted]

CHAPTER II.

GUIDANCE FOR SOUND MANAGEMENT

§4. Management Guidance Ratios

(1) MBS companies shall maintain the management guidance ratios under each of the following subparagraphs pursuant to Article 16 paragraph (2) of the Act and Article 7 of the Decree.

1. Ratio of equity capital to risk-weighted assets : 8/100 or more;

2. Ratio of liquidity assets in won currency to liquidity liabilities in won currency : 100/100 or more; and

3. Ratio of securities investment to equity capital : 60/100 or less.

(2) Detailed criteria on the calculation of ratios under paragraph (1) shall be determined by the Governor.

(3) The Governor may require the submission of a plan or a contract for the improvement of a MBS company with the possible aggravation of management guidance ratio under paragraph (1) , or the Governor may conclude management improvement agreements with the MBS company concerned. However, this is not applicable to any MBS company in receipt of management improvement measures pursuant to Article 9  of this Regulation.

§5. Asset Soundness Classification

(1) MBS companies shall regularly classify the soundness of their holding assets into five different categories of "normal", "precautionary", "substandard", "doubtful," and "estimated loss", and accumulate and maintain adequate loan loss provisioning (including allowances for payment guarantees, and as such hereinafter) pursuant to Article 16 paragraph (3) of the Act and Article 7 subparagraph 2 of the Decree.

(2) MBS companies shall establish standards for asset soundness classification by reflecting the standards under Appendix Table 2, and report to the Governor on the standards established within the twenty days from the end of every quarter. However, MBS companies may not report where the standards stay the same as applied at the end of a previous quarter.

(3) MBS companies shall classify soundness of their own assets on the basis of the end of every quarter, and report to the Governor on the results of classification and loan loss provisioning accumulation through the annual and monthly reports under Article 8.

(4) The Governor may examine adequacy of asset soundness classification and loan loss provisioning accumulation of a MBS company and require the corrections thereof when determining their inadequacy .

(5) MBS companies shall secure the soundness of their assets through the early write-off of their assets classified as "doubtful" or "estimated loss" pursuant to paragraph (1) (hereinafter, "non-performing assets").

(6) The Governor may require such institution to write off the specific non-performing assets  when he deems that the write-off performance of the non-performing assets of a MBS company is insufficient.

§5-2. Assets Subject To Classification

Holding assets under Article 5 paragraph (1) corresponds to the assets determined under the following subparagraphs, which include such relevant assets in trust accounts.

1. Mortgage claims

2. Payment Guarantees

3. Payments on payment guarantees

4. Securities

5. Suspense payments and account receivables

6. Other assets recognized by MBS companies as necessary.

§5-3. Loan Loss Provisioning Standards

(1) MBS companies accumulate the amounts under each of the following items for loan loss provisioning in accordance with the results of asset soundness classifications against mortgage claims (excluding underlying mortgage claims of mortgage-backed beneficiary certificates), payments on payment guarantee, and suspense payment in nature of a credit at the present date of account settlements (including the provisional closing on a quarterly basis; hereinafter as such in this Article),

1. 0.25/100 or more of  assets classified as "normal"

2. 1/100 or more of  assets classified as "precautionary"

3. 20/100 or more of  assets classified as "substandard"

4. 50/100 or more of  assets classified as "doubtful"

5. 100/100 of  assets classified as "estimated loss"

(2) MBS companies shall accumulate the amounts determined in the following items as the payment guarantee reserves for the payment guarantee at the present date of accounts settlement pursuant to the results of asset soundness classification during the period of settlement of accounts.

1. 20/100 or more of  payment guarantee classified as "normal"

2. 50/100 or more of payment guarantee classified as "doubtful"

3. 100/100 or more of payment guarantee classified as "estimated loss"

(3) Notwithstanding paragraph(1), the Governor may require the relevant MBS company to accumulate the total amounts of expected loss into special loss provisioning by the end of a relevant quarter in the event a financial accident under the Regulation Concerning the Examination and Sanction of Financial Institutions has led or is expected to lead to losses exceeding the amounts equivalent to 1/100 of equity capital as of the end of the previous month.

(3) In the event asset soundness classification of the expected loss is determined after special loss provisioning has been made under paragraph (3), the  MBS company may accumulate the loan loss provisioning pursuant to under paragraph (1).

§6. Risk Management

For prevention and efficient management of such risks as the risk of redemption before maturity, liquidity risk, credit risk, MBS companies shall establish and operate a comprehensive risk management system, including an adequate internal control system and an asset-liabilities management system.

§7. Accounting Principles

(1) MBS companies must comply with the principles under following subparagraphs for accounting.

1. Mortgage backed securities subject to securitization (including property rights such as cash, etc. acquired through managing, operating, and disposing mortgage backed securities; hereinafter as such in this Article and Article 12-2 paragraph (3)) must be separately treated as independent accounts from those assets not subject to securitization; and

2. Mortgage backed securities subject to securitization under subparagraph (1) must be treated separately for each securitization plan.

(2) MBS companies must comply with the Accounting Procedures for the Banking Industry determined by the Securities and Futures Commission for accounting. The Trust Accounting Standard for Banks with Concurrent Trust Business stipulated in the Enforcement Regulations on Trust Business Supervision, however, shall apply to the accounting of underlying mortgage claims of mortgage-backed beneficiary certificates.

(3) Detailed criteria pertaining to accounting, kinds and presentation orders of accounting titles, etc. other than those determined by the Accounting Procedures for the Banking Industry and the Trust Accounting Standard under paragraph (2), shall be mandated by the Governor.

§8. Monthly and Annual Reports

(1) MBS companies must submit, pursuant to provisions under Article 22 paragraph (2) of the Act, a monthly report within the twentieth day of the next month, and an annual report within one month from the end of a business year to the Governor.

(2) The Governor determines the formats for the monthly and annual reports under paragraph (1).

§9. Management Improvement Measures

(1) The Governor must, in case MBS companies are under the following subparagraphs, require such MBS companies to take necessary measures by the resolution of the FSC pursuant to Article 16 paragraph (4) of the Act.

1. When the ratio of equity capital to risk-weighted assets under Article 4 falls short of 8/100;

2. Where it is obviously adjudged that MBS companies are subject to the provision of subparagraph 1 due to major financial accidents or bad loans; and

3. When MBS companies, whose management improvement plans have been approved by paragraph (4), does not faithfully implement the plans.

(2) The necessary measures under paragraph (1) imply those applicable under all or parts of the following subparagraphs.

1. Improvement in personnel and organization management;

2. Cost reduction;

3. Efficient management of business offices;

4. Restrictions on investments in fixed assets, entry into new business areas, and new capital investments;

5. Restriction on holding risk assets, and disposal of assets;

6. Increase in paid-in capital;

7. Restrictions on dividends;

8. Accumulation of special loss provisioning;

9. Divestiture of subsidiaries;

10. Replacement of directors; and

11. Total or partial suspension of business within a six months period.

(3) MBS companies subject to management improvement measures pursuant to paragraph (1) must submit plans reflecting the contents of management improvement measures (hereinafter, "management improvement plan") within one month from the date of request.

(4) The FSC must decide whether to approve the management improvement plan within one month from the date of submission pursuant to paragraph (3). When the plan is deemed not feasible, the FSC shall disapprove it and may request implementation of all or part of the measures listed in paragraph (2) within a specified time period it prescribes.

(5) MBS companies, which have obtained the approval of a management improvement plan pursuant to paragraph (4), must submit quarterly implementation results of such plan by the tenth day of the following month after the end of each quarter to the Governor. The Governor examines the implementation results and may take necessary actions. In the event that MBS companies subject to management improvement measures do not implement major parts of their management improvement plan, the Governor must urge them to implement such parts within a specified time period.

(6) The Governor, by resolution of the FSC, may postpone taking actions for a specified period of time when MBS companies falling short of criteria under paragraph (1) have definitely satisfied or will be able to satisfy within a short period of time the criteria through increase in its capital or sale of its assets, or if there are reasons corresponding thereto.

§10. Public Disclosure of Management Performance

(1) MBS companies must disclose matters under the following subparagraphs within four months from the date of settlement pursuant to Article 22 paragraph (3) of the Act. Public disclosure on the result of provisional closing of the first half of the year, however, shall be made within two months from the date of the provisional closing.

1. Matters on organization and personnel;

2. Matters on finance, profit and loss;

3. Matters on financing and operation of funds;

4. Matters on management indicators showing prudence, profitability, and productivity;

5. Matters on progress in claims securitization; and

6. Matters on the establishment and operation of an internal control system and a risk management system.

(2) MBS companies shall publicly disclose relevant contents, in the event the soundness of its management either has been damaged or is likely to be damaged due to reasons applicable under any of the following subparagraphs.

1. Where bad loans, financial accident, or other events as such arise;

2. Where management improvement measure requests are imposed pursuant to Article 9; and

3. Where serious problems hindering the normal implementation of the claims securitization plan occur.

(3) The subjects, contents, methods, timing, etc. of public disclosure under paragraph (2) shall be determined by the Governor.

(4) In the event an MBS company makes an insincere public disclosure, such as a false disclosure of the matters under paragraph (1) and (2), or an omission of important matters, the Governor may demand the MBS company to correct it or to make another public disclosure.

CHAPTER III.

PROTECTION OF THE RIGHTS AND INTERESTS OF INVESTORS

§11. [Deleted]

§12. Disclosing the Terms and Conditions of MBS Transactions

(1) For the purpose of protecting the rights and interests of investors, MBS companies must accurately disclose terms and conditions of contracts on transactions of mortgage-backed securities under Article 11 of the Act and mortgage-backed beneficiary certificates under Article 12 of the Act (hereinafter, "Mortgage-backed securitization securities").

(2) MBS companies shall not commit acts applicable under any one of the following subparagraphs in disclosing contract terms and conditions, etc. in accordance to paragraph (1).

1. Expressing matter(s) or issue(s) unsettled or undecided in connection with MBS transaction(s) in the manner of certainty;

2. Implying comparative advantages to other financial products in vague, yet attractive manner, without providing any specific grounds; and

3. Guaranteeing the yield in advance or presenting estimated yield publicly or privately for mortgage-backed beneficiary certificates without agreements for the preservation or guarantee of profits.

(3) MBS companies must disclose every month regarding pre-maturity redemption, arrears, and losses of underlying mortgage claims for each securitization plan.

§13. [Deleted]

§14. Prohibition against Unsound Business Practices

MBS companies shall not conduct unsound business practices under any one of the following subparagraphs.

1. Granting, receiving, proposing, demanding, or promising benefits not clearly stipulated in contracts to/from interested parties in connection with securitization business;

2. Acquisition of treasury stocks with funds obtained through managing, operating, or disposing the underlying mortgage claims of a securitization; and

3. Trading securities or engaging in financial transactions with affiliates (in accordance with Article 2 subparagraph 3 of the Act on Monopoly Regulation and Fair Trade) in terms unfavorable to MBS companies.

CHAPTER IV.

SUPPLEMENTARY PROVISIONS

§15. Approval of Holding Position or Occupation Concurrently by Directors and Employees

In case intending to obtain the approval of the FSC for holding position or occupation concurrently pursuant to Article 15 of the Act, the application for approval shall be submitted the following documents attached thereto:

1. Statement of Reasons;

2. Document stating authority and duty of the present position held in the credit securitization company, and authority and duty of the position or occupation intended to be held concurrently; and

3. Document stating relationship between the credit securitization company and the company, the position or occupation in which is intended to be held concurrently.

§16. [Deleted]

Addendum

This Regulation shall be effective on August 7, 1999.

Addendum

(January 29, 2001)

This Regulation shall be effective on the date of promulgation.

Addendum

(July 19, 2001)

This Regulation shall be effective on the date of promulgation.