Overview

Irish investment funds may be sold in Korea by way of public offering or private placement. In both cases, the Irish fund must register in Korea pursuant to the Financial Investment Services and Capital Markets Act, and its subordinate regulations (the "FSCMA") which came into effect on 4 February, 2009.

Since the introduction of FSCMA many offshore funds offered on a private placement basis have been registered under the FSCMA.

It should be noted that if any supplement or addendum to the Irish prospectus, specific to investors domiciled in Korea, is prepared such document will need to be submitted to the Central Bank of Ireland in advance to ensure that there are no inconsistencies with the Irish prospectus.

We have set out below a summary of the various eligibility requirements for the registration of Irish funds in Korea pursuant to the FSCMA.

Registration with the Financial Services Commission

Under the FSCMA regime, all offshore funds to be marketed and / or sold to Korean investors (even if marketed to institutional investors only) are required to be registered with the Financial Services Commission (the "FSC"). The eligibility requirements are lower if the offer is limited to certain Qualified Professional Investors as prescribed under the FSCMA. Please note that an Irish fund may only be offered on a private placement basis where it is offered to Qualified Professional Investors only.

Registration of a Privately Placed Irish Fund

The main eligibility requirements that must be met in order to register an Irish fund with the FSC, where the offer is limited to Qualified Professional Investors, are as follows:

  • the fees and expenses to be incurred by the investors are to be clearly disclosed in the fund documents; the asset management company (or general partner) of the offshore fund has not been sanctioned by the Korean regulators,
  • equivalent to an administrative sanction of suspension of business or more severe sanction, or criminal penalties of fine or more severe penalties,
  • for the past 3 years; the following entities relating to the offshore fund are not subject to suspension of business; (i) asset manger, (ii) trustee/custodian, (iii) distributor and (iv) administrator;
  • the offshore fund has been created and established lawfully in compliance with the laws of the home country;
  • the constituent documents of the offshore fund do not violate the laws and regulations of the home country, nor explicitly undermine investor's interests; and
  • a supervisory director (if any) of an investment company shall not fall under certain negative qualifications specified by Article 24 of the FSCMA (if the concerned fund is a partnership and it is not required to have a supervisory director under the laws of its establishment, this requirement should not be applicable).

The term "Qualified Professional Investors" under the FSCMA includes the Korean government, the Bank of Korea, certain financial institutions and certain pension funds. Separate from the registration requirements under the FSCMA, certain additional restrictions under the Foreign Exchange Transaction Regulations (the "FETR") may apply to Korean investors when investing in foreign securities (including offshore funds interests).

Registration of a Publicly Offered Irish Fund

With respect to Irish funds sold to non-qualified professional investors in Korea (i.e. a public offering), the discretionary asset manager of the Irish fund should meet certain eligibility criteria relating to the amount of assets under management, net assets and not being subject to sanctions in the past three years.

Several publicly offered offshore funds have registered (or, in the case of publicly offered funds that registered before the FSCMA took effect in February 2009, re-registered) with the FSC.

The registration process primarily involves the preparation and submission to the FSC of a securities registration statement ("SRS") and a Korean prospectus, as well as the submission of various supplemental documents. The documents that the Irish fund will need to prepare / provide in connection with its registration in Korea include:

  • the Irish prospectus (and any Irish simplified prospectus/key investor information document);
  • the most recent annual / semi-annual reports of the fund and of the discretionary asset manager; the constitutive documents;
  • a no sanction certificate in respect of the discretionary asset manager from its home regulator;
  • a certificate of assets under management from the discretionary asset manager;
  • a legal opinion from Irish counsel as to the due establishment etc. of the Irish fund; and
  • related agreements between the Irish fund and its service providers and agents, if applicable.

A number of the above documents will need to be translated into Korean for registration purposes and the costs of this need to be considered.

Once the draft SRS and the Korean prospectus have been prepared they will be submitted to the FSC for its review. During the informal review process, the FSC may issue comments and / or request certain revisions be made or documents be provided. Once the SRS and Korean prospectus have been finalised, the same will be submitted to the FSC and the SRS will be uploaded to DART, the electronic reporting and disclosure system of the FSC. In the absence of any additional comments from the FSC, the SRS will go "live" 15 days after being accepted.

The FSC does not charge for processing the registration of an Irish fund for sale in Korea. Registration can be completed within three-four months (assuming that the required information / documents are provided in a timely manner and the FSC does not raise any unforeseen issues.

Marketing

Under the FSCMA, marketing activities, even when directed towards Qualified Professional Investors only, are required to be carried out through a local distributor (which includes Korean securities companies, banks, and insurance companies that are licensed to distribute fund products). If there is no marketing aimed at Korean investors then there is no requirement to engage such company.

There is no specific definition of marketing and it can be construed widely to mean any form of solicitation activity aimed at Korean investors (whether through in-person meetings, telephone calls, sending of offering documents, etc.). As such, it is not permissible for employees of the Irish fund or its discretionary asset manager to market interests in the Irish fund directly to Korean investors. Such marketing efforts should be undertaken by a local distributor. Whether there is marketing activity or not would depend heavily on the specific facts and should be determined on a case-by-case basis.

If the Korean investor contacts the distributing entity on an unsolicited basis and requests information on the Irish fund, it may be permissible to provide them with the relevant information (as it may be argued that such should not be viewed as engaging in onshore marketing, but, rather, simply responding to an unsolicited request) depending on the specific factual context.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.