The South Korean Government plans to expand the country's pool of professional investors (HNWs with enough market experience to trade freely) and open a new trading venue, called ‘K-OTC Pro’ on which they and they alone can trade unlisted equities.

As part of the Government’s drive to reform the capital markets, the Cabinet approved amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) recently. The aim is to encourage investors who are well aware of investment-related risks and able to afford such risks, to play an active part in funding innovative start-ups and SMEs.

South Korea's regulator, the Financial Services Commission, has made it easier for individual investors to be registered as ‘professional investors’ and has streamlined its registration procedures. Beforehand, ‘professional investors’ were required to satisfy two criteria at the same time: loss-absorbing ability and investment experience. The amendments divide tracks to be registered as ‘professional investors’ in two categories for (i) individual investors without financial expertise and (ii) individual investors with financial expertise.

Track 1: Individual investors without financial expertise

General HNW investors without financial expertise are still required to meet both criteria of loss-absorbing ability and investment experience but the regulator has eased its thresholds for each criterion as follows.  

• Investment experience: each investor must keep a financial investment account with a minimum balance of KRW50 million for at least one year within the most recent five years. 
• Loss-absorbing ability: he must also meet a minimum annual income of KRW100 million for single income earners (KRW150 million in the case of a couple with combined income), or a minimum net asset value of KRW500 million.  

Track 2: Individual investors with financial expertise

People who have financial expertise can be registered as ‘professional investors’ if they meet the criterion of ‘investment experience.’ Investors with financial expertise include public certificate holders (e.g. accountants, lawyers, patent attorneys), financial investment business professionals and professional financial service certificate holders (e.g. investment advisory service, investment management, investment product analysis).
    
Registration procedures for professional investors will become easier. They will no longer have to go through the registration procedure with the Korea Financial Investment Association as they do now. Financial investment companies will be allowed to decide whether their customers qualify for ‘professional investors’ upon their application. However, if they are guilty of inappropriate screening, perhaps labelling their customers as ‘professional investors’ against their will or recognising unqualified investors as ‘professional investors,’ they will be punished.