The South Korea Financial Services Commission has published proposed amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act and related supervisory rules to operationalise a new regulatory framework for business development companies (BDCs) under the amended Act, which is scheduled to take effect on March 17, 2026. The package also includes targeted changes to rules for publicly offered funds and financial investment businesses. Under the proposal, BDCs would generally have to invest at least 60 percent of total assets in their main targets (including unlisted startups and venture businesses, venture investment associations, and KONEX- or KOSDAQ-listed companies), with limits on how much investment in venture associations and KOSDAQ-listed companies can count toward the 60 percent minimum (30 percent each). Eligible KOSDAQ-listed companies would be capped at KRW200 billion or less in market capitalisation. Investment could be through equity purchases (stocks and equity-linked bonds such as convertible bonds, exchangeable bonds, and bonds with warrants) or lending, with lending limited to 40 percent of total investment and subject to internal controls for credit risk management. Additional constraints include a minimum 10 percent allocation to safe assets, a 10 percent single-entity exposure cap for the same investment method, a 50 percent cap on total share purchases, and a prohibition on bypassing requirements through fund-of-funds structures. The proposal also sets BDC-specific grace periods (including up to one year for certain noncompliance and extensions tied to investment review committee decisions), investor protection measures (minimum five-year maturity, minimum subscription amount of KRW30 billion, manager seed funding requirements, lock-up periods, enhanced valuation and external review frequency, and disclosure triggers), and licensing requirements for BDC management entities aligned with collective investment service standards, including minimum equity capital of KRW4 billion and specified staffing. Related fund reforms would, among other items, raise the investment limit for certain publicly offered fund-of-funds “policy-based funds” into ordinary private equity funds to 100 percent (from 50 percent), broaden permitted sovereign bond holdings for publicly offered funds to include up to 100 percent in government bonds of countries rated at least equivalent to Korea by the three major global rating agencies, extend seed-funding exemptions to funds investing in equity-linked bonds and derivative-linked bonds, and streamline authorisation for certain foreign firm branch-subsidiary conversions where core functions do not change. Public comments are open from December 4, 2025 to January 13, 2026, after which the proposals are expected to proceed through legislative review and approval processes ahead of the March 17, 2026 effective date.
South Korea Financial Services Commission 2025-12-03
South Korea Financial Services Commission consults on a new business development company regime and related publicly offered fund rule changes
The South Korea Financial Services Commission proposed amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act to establish a regulatory framework for business development companies (BDCs), effective March 17, 2026. Key provisions include investment thresholds, asset allocation requirements, and investor protection measures, alongside changes to rules for publicly offered funds and financial investment businesses. Public comments are invited until January 13, 2026, before legislative review and approval.