NCR rules on asset management companies to be abolished

Standard

1 Net Capital Ratio (NCR) has been serving as a key index to assess soundness of financial firms and has been widely used as standards for financial authorities to take prompt corrective actions.

However, there have been claims by the market participants that the NCR rules are less effective to apply to asset management companies as it is better suited to securities firms’ business model and environment. Therefore, the FSC plans to abolish the NCR rules as a means to improve prudential regulations on the asset management industry. Instead, A new standard, ‘minimum capital requirement’, will be introduced to replace the NCR.

The minimum capital requirement can be derived by adding up regulatory capital requirement, capital requirement for client asset management, and capital requirement for proprietary investments. Regulatory capital requirement is a standard for an asset management company to meet for it to maintain the business license. Capital requirement for client asset management is a reserve money accumulated by each asset management company to use it as a deposit to compensate clients’ financial damages. Lastly, capital requirement for proprietary investments is a sum of accumulated money to be used as a buffer against investment risks.

click the link to read the FSC’s press release -> http://www.fsc.go.kr/downManager?bbsid=BBS0048&no=93081

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