Article 1(Purpose) #
The purpose of this Act is to secure the validity and reliability of financial benchmarks by prescribing basic matters relating to the calculation and use of financial benchmarks and to contribute to the protection of financial consumers and the stabilization of financial markets by enhancing the transparency and efficiency of financial transactions.
Article 2(Definitions) #
The terms used in this Act are defined as follows:
1. The term “financial company or institution” means an institution defined in the subparagraphs of Article 38 of the Act on the Establishment, etc. of Financial Services Commission or an institution prescribed by Presidential Decree as an institution providing financial transaction services pursuant to any other statute;
2. The term “financial benchmark” means a figure that meets all the following requirements as a reference for determining an amount or the value of a financial instrument that a party to a financial contract or a party to a financial transaction for brokerage or sale and purchase shall pay to or exchange with the other party (referring to interest for a loan or deposit; interest, an amount of money agreed to pay, or the price or value of a financial investment instrument defined in Article 3 of the Financial Investment Services and Capital Markets Act; or contingent remuneration, etc. payable to a collective investment scheme under Article 9 (18) of the same Act):
(a) The figure shall be the one calculated by a prescribed method using data such as figures, quotes, appraised values, or estimates based on market transactions (hereinafter referred to as “input data”);
(b) The figure shall be disclosed to the general public on a real-time basis or periodically;
3. The term “critical benchmark” means a financial benchmark designated by the Financial Services Commission from among the benchmarks falling under any subparagraph of Article 4 (1);
4. The term “calculation” means the business of computing and determining financial benchmarks and providing them to users and services incidental to that business;
5. The term “submission” means the business of submitting input data to an institution that engage in calculation and services incidental to that business;
6. The term “administrator of a critical benchmark” means an institution designated by the Financial Services Commission pursuant to Article 5 (1) to calculate critical benchmarks.
Article 3(Scope of Application) #
This Act shall apply not only to the calculation of financial benchmarks or financial transactions and other activities related to financial benchmarks, which take place within the Republic of Korea, but also to the same activities that take place outside the Republic of Korea with effects extending to the Republic of Korea.
Article 4(Designation and Cancellation of Designation of Critical Benchmarks) #
(1) The Financial Services Commission may designate financial benchmarks that fall under any of the following subparagraphs and seriously affect financial markets, the protection of financial consumers, the real economy, etc. as critical benchmarks:
1. Where the scale of financial transactions in which a financial benchmark is used is great enough;
2. Where no financial benchmark that can be alternatively used exists;
3. Where undermining the validity or reliability of a financial benchmark is likely to seriously affect investors and other participants in financial markets.
(2) If a critical benchmark fails to meet the requirements of paragraph (1), the Financial Services Commission may cancel the designation of the critical benchmark.
(3) When the Financial Services Commission intends to designate a critical benchmark or cancel the designation of a critical benchmark, it may consult with the Bank of Korea under the Bank of Korea Act (hereinafter referred to as the "Bank of Korea”) to assess whether the designation of the critical benchmark or the cancellation of such designation is necessary and may request the institution calculating the financial benchmark and other relevant institutions to provide information or present their opinions, etc. In such cases, the relevant institutions shall comply with the request unless there is a compelling reason not to do so.
(4) When the Financial Services Commission designates a critical benchmark or cancels the designation of a critical benchmark, it shall publicly notify the fact without delay.
Article 5(Designation of Administrators of Critical Benchmarks) #
(1) Where the Financial Services Commission designated a critical benchmark pursuant to Article 4 (1), it may designate the institution which engages in in the calculation of the critical benchmark as an administrator of a critical benchmark.
(2) An institution shall qualify for the designation under paragraph (1) if it meets all the following requirements:
1. It shall use a valid calculation method that can adequately represent what the critical benchmark intends to measure and shall have a system in place that enables transparent disclosure and management of the critical benchmark;
2. It shall have in place an internal control system with which it can manage conflicts of interest, observe the procedure for calculation and manage and supervise such activities in the course of calculation in order to secure the reliability of the critical benchmark;
3. It shall have in place a system through which it can effectively monitor each institution which engages in the submission of basic data related to the critical benchmark (hereinafter referred to as “contributor of input data”) and request them to make improvements;
4. It shall establish regulations which include the following matters, (hereinafter referred to as “operational rule for calculation”) as prescribed by Presidential Decree and obtain approval from the Financial Service Commission in advance so as to ensure validity and reliability throughout the process of calculating the critical benchmark:
(a) The methods and procedures for calculating the critical benchmark and the critical benchmark statement;
(b) The standards and procedures with which executive officers and employees of the administrator of a critical benchmark shall comply for the management of conflicts of interest, etc. in the course of calculating the critical benchmark;
(c) The standards and procedures with which contributors of input data shall comply and the methods of management and supervision of submissions;
(d) Where calculation of critical benchmarks is entrusted to any other entity, the methods and procedures for handling business affairs related to the entrustment of said calculation.
(3) If an administrator of a critical benchmark falls under any of the following subparagraphs, the Financial Services Commission may revoke the designation of such institution: Provided, That in cases of subparagraph 1, the Financial Services Commission must revoke the designation:
Article 6(Duties of the Critical Benchmark Management Committee) #
(1) An administrator of a critical benchmark or an institution that intends to establish an operational rule for calculation and obtain approval from the Financial Services Commission, in advance, pursuant to Article 5 (2) 4, shall establish a committee for the management of critical benchmarks as prescribed by Presidential Decree, in order to deliberate on the following matters:
1. The establishment and amendment of an operational rule for calculation;
2. Important matters related to the collection of input data and the computation, determination, and provision of critical benchmarks;
3. Other important matters prescribed by Presidential Decree as those relating to the management of critical benchmarks to ensure the reliability and validity of critical benchmarks.
(2) An administrator of a critical benchmark shall enter into and maintain a contract related to submission with a contributor of input data, and such contract shall include the matters under Article 5 (2) 4 (c).
(3) An administrator of a critical benchmark shall publish the contents of an operational rule for calculation and matters relating to the management of conflicts of interest through its website, etc. as prescribed by Presidential Decree.
(4) An administrator of a critical benchmark shall review the appropriateness of an operational rule for calculation at least once every two years in order to maintain the validity and reliability of critical benchmarks.
(5) An administrator of a critical benchmark shall conduct inspections at least once every year to make sure that it complies with an operational rule for calculation; publish the result of such inspections on its website, etc.; and take the following measures for any violation of an operational rule for calculation if such violation is found as a result of the inspections: Provided, That in cases prescribed by Presidential Decree as those where it is highly possible that conflicts of interest will occur in the course of calculating critical benchmarks, additional inspections of the observance of an operational rule for calculation shall be conducted by an independent institution or expert prescribed by Presidential Decree at least once every year:
1. Immediately correcting the violation or requesting the contributor of input data to correct the violation;
2. Excluding input data submitted by a contributor of input data which violated the operational rule for calculation from the process of calculating a critical benchmark;
Article 7(Cessation of Calculation of Critical Benchmarks) #
(1) When an administrator of a critical benchmark intends to cease the calculation of critical benchmarks, it shall report to the Financial Services Commission no later than six months before the scheduled date of cessation, as determined by the Financial Services Commission. In such cases, the administrator of a critical benchmark shall publish the reasons for, timing, etc. of cessation, in advance, for at least 20 days before filing a report to the Financial Services Commission to hear opinions thereon.
(2) Notwithstanding paragraph (1), if the administrator of a critical benchmark intends to cease the calculation of a critical benchmark due to any hardly predictable event, such as cases where it is impossible to maintain the validity and reliability of the critical benchmark due of a sudden market disturbance, it shall report the event to the Financial Services Commission immediately when such event occurs. In such cases, the administrator of a critical benchmark may omit to follow the procedures for publication and for hearing opinions under the latter part of paragraph (1).
(3) Upon receipt of the report under paragraph (1) or (2) or if it is impracticable for the administrator of a critical benchmark to calculate the critical benchmark due to bankruptcy, etc. and if cessation of the calculation of the critical benchmark has a great impact on the protection of financial consumers and the stabilization of financial markets, the Financial Services Commission may take the following measures with respect to the administrator of a critical benchmark:
1. Recommending transfer of calculation of critical benchmarks to another institution;
2. Issuing an order to continue calculation of critical benchmarks for not more than 24 months in total;
3. Other measures prescribed by Presidential Decree, such as an order to publish guidelines for the use of critical benchmarks in order to minimize damage to financial consumers and financial markets.
Article 8(Cessation of Submission of Input Data) #
(1) When a contributor of input data intend to cease the submission of input data related to a critical benchmark (hereinafter referred to as “input data”), the administrator of the critical benchmark shall report to the Financial Services Commission no later than six months before the scheduled date of cessation, as determined by the Financial Services Commission.
(2) Notwithstanding paragraph (1), if a contributor of input data intends to cease the submission of input data due to a hardly predictable event, such as cases where the contributor of input data is unable to engage in submission due to a sanction under any other law, the administrator of the critical benchmark shall report the event to the Financial Services Commission immediately when such event occurs.
(3) Upon receipt of the report under paragraph (1) or (2), the Financial Services Commission may take the following measures for not more than 24 months in total if cessation of the submission of input data is likely to impair the validity or reliability of the critical benchmark:
1. Issuing an order to continue submission to the contributor of input data that intends to cease the submission of input data;
2. Issuing an order to a financial company or institution that makes or are able to make financial transactions relating to input data to submit input data.
Article 9(Use of Critical Benchmarks) #
(1) When a user of a critical benchmark enters into a financial contract prescribed by Presidential Decree in relation to the critical benchmark with an ordinary investor under Article 9 (6) of the Financial Investment Services and Capital Markets Act (hereinafter referred to as “ordinary investor”), it shall distribute and explain the critical benchmark statement under Article 5 (2) 4 (a) to the other party to the financial contract.
(2) A user of a critical benchmark shall prepare a contingency plan prescribed by Presidential Decree in preparation for cessation of the calculation of the critical benchmark and shall reflect the contingency plan in the terms and conditions of the financial contract under paragraph (1) and shall explain said terms and conditions of the contract in which the contingency plan is reflected to the other party to the contract, when it enters into a financial contract with an ordinary investor.
Article 10(Prohibition of Manipulation of Critical Benchmarks) #
(1) Neither a contributor of input data nor an administrator of a critical benchmark shall commit any act that would constitute distortion, manipulation, or any other impropriety in submitting input data or in calculating the critical benchmark.
(2) Neither a contributor of input data nor an administrator of a critical benchmark shall commit any act that would impair the validity and reliability of the critical benchmark as a result of a violation of the operational rule for calculation or the failure to exercise reasonably required due care in submitting input data or in calculating the critical benchmark.
Article 11(Authority to Order to Take Measures) #
When the validity and reliability of a critical benchmark is likely to be impaired, the Financial Services Commission may order a contributor of input data, an administrator of a critical benchmark, or a user of a critical benchmark (hereinafter referred to as “contributor of input data or other relevant institution”) to take necessary measures with regard to the following matters:
1. The management of conflicts of interest in the process of calculating the critical benchmark;
2. Various kinds of publication;
3. The operation of the critical benchmark management committee;
4. The inspection and management of compliance with of operational rules for calculation;
5. Restrictions on the use of the critical benchmark;
6. Other matters prescribed by Presidential Decree as those necessary for the protection of financial consumers or the stabilization of financial markets.
Article 12(Supervision, Inspection, and Administrative Dispositions) #
(1) The Financial Services Commission shall supervise the compliance of contributors of input data and other relevant institutions with this Act or an order issued under this Act and may inspect business affairs of the contributors of input data and other relevant institutions under this Act.
(2) If it is found as a result of the inspection under paragraph (1) that a contributor of input data or other relevant institution or a financial company or institution to whom an order was issued under Article 8 (3) 2 falls under any subparagraph of the attached Table, the Financial Services Commission may take the following measures:
1. A caution or warning to a contributor of input data or other relevant institution or to a financial company or institution;
2. An order to correct or suspend a violation;
3. An order to publish or post the fact that it is subjected to a measure taken for a violation;
4. A request for dismissal, suspension of performance of duties for not more than six months, or a warning or caution against an executive officer (referring to an executive officer under subparagraph 2 of Article 2 of the Act on Corporate Governance of Financial Companies, excluding operating officers under subparagraph 5 of the same Article) of the contributor of input data or other relevant institution or of the financial company or institution;
5. A request for removal from office, suspension from office for not more than six months, salary reduction, reprimand, a warning, or caution against an employee (including operating officers under subparagraph 5 of Article 2 of the Act on Corporate Governance of Financial Companies) of the contributor of input data or other relevant institution or of the financial company or institution;
6. Suspension of the relevant business affairs of the contributor of input data or other relevant institution or the financial company or institution for not more than six months.
(3) The Financial Services Commission may determine and publicly notify the methods and procedures for the inspection, guidelines for the actions to be taken according to the result of the inspection, and other matters necessary for the inspection.
Article 13(Penalty Surcharges) #
(1) The Financial Services Commission may impose a penalty surcharge on a person falling under any of the following subparagraphs in an amount not exceeding a profit gained or loss avoided, if any by such person or any third party by committing a violation:
1. A person who calculates a critical benchmark without being designated as an administrator of the critical benchmark under Article 5 (1) or without being subjected to a measure taken under Article 7 (3) 2;
2. A person who engages in submission or calculation by distortion, manipulation, or other improper means, in violation of Article 10 (1);
3. A person who commits an act of impairing the validity and reliability of a critical benchmark, in violation of Article 10 (2).
(2) Where the Financial Services Commission is required to take a measure under Article 12 (2) 6 against a contributor of input data or other relevant institution and if suspension of business is likely to undermine public interest, the Financial Services Commission may impose a penalty surcharge not exceeding 100 million won in lieu of the suspension of business as prescribed by Presidential Decree.
Article 14(Special Cases concerning Administrative Agencies) #
(1) This Act shall not apply to any of the following agencies:
1. A central administrative agency or a local government;
2. The Bank of Korea;
3. A public institution or a public organization that has administrative authority under any other statute or regulation or that has authority delegated or entrusted by a person who has administrative authority, among institutions and organizations other than those under subparagraph 1 or 2;
4. A foreign institution or organization equivalent to any institution under subparagraphs 1 through 3.
(2) Notwithstanding paragraph (1), where an institution under any of subparagraphs 1 through 3 of the same paragraph intends to cease calculation of a critical benchmark, it shall consult with the Financial Services Commission on the cessation of calculation of the critical benchmark, the transfer of calculation to another institution, etc., no later than six months before the date of cessation of calculation. In such cases, the Financial Services Commission may request such institution to continue calculation of the critical benchmark for a period not exceeding 12 months for, among other things, financial market stability.
Article 15(Special Cases concerning Foreign Administrators) #
(1) Where an institution, organization, or any entity established pursuant to a foreign law calculates a critical benchmark, such institution, organization, or entity shall be deemed to be designated as an administrator of a critical benchmark under Article 5 (1) when it meets all the following requirements and files a report with the Financial Services Commission, as determined by the Financial Services Commission:
1. The critical benchmark is supervised under its domicile country’s statutes or regulations equivalent or similar to this Act;
2. It is possible to submit materials necessary for the supervision of calculation of the critical benchmark via the supervisory authorities or the relevant institution, organization, or entity of its domicile country.
(2) The Financial Services Commission shall not apply Articles 6 through 8, 12, 18 (2), and 19 to an administrator of a critical benchmark deemed to have been designated as such under paragraph (1).
(3) When an administrator of a critical benchmark deemed to have been designated as such under paragraph (1) falls under any subparagraph of Article 5 (3) or has its designation as an administrator of a critical benchmark revoked by the supervisory authorities of its domicile country, the Financial Services Commission may revoke the designation of an administrator of a critical benchmark.
Article 16(Special Cases concerning Foreign Exchange Brokerage Companies) #
(1) Where the Financial Services Commission intends to designate a financial benchmark calculated by a foreign exchange brokerage company authorized under Article 9 of the Foreign Exchange Transactions Act (hereinafter referred to as “foreign exchange brokerage company”) as a critical benchmark or cancel the designation of such critical benchmark under Article 4 (1) or (2), it shall consult with the Minister of Economy and Finance thereon.
(2) Where a financial benchmark calculated by a foreign exchange brokerage company is designated as a critical benchmark under paragraph (1), the following measures with respect to such foreign exchange brokerage company shall be taken by the Minister of Economy and Finance. In such cases, the Minister of Economy and Finance shall immediately notify the Financial Services Commission of the result of measures taken:
1. Designation of an administrator of a critical benchmark or the revocation of such designation under Article 5;
2. The acceptance of a report on the cessation of calculation of a critical benchmark and measures to be taken under Article 7;
3. The acceptance of a report on the cessation of submission by a contributor of input data and measures to be taken under Article 8;
4. Issuance of an order to take measures under Article 11;
5. Supervision, inspection, and administrative dispositions under Article 12;
6. The imposition of a penalty surcharge under Article 13;
7. The entrustment of authority under Article 17;
8. The imposition of an administrative fine under Article 19.
Article 17(Entrustment of Authority) #
The Financial Services Commission may entrust part of its authority under this Act to the head of a related administrative agency, the Governor of the Financial Supervisory Service, or any other person prescribed by Presidential Decree as prescribed by Presidential Decree.
Article 18(Penalty Provisions) #
(1) Any of the following persons shall be punished by imprisonment with labor for up to three years or by a fine equivalent to at least twice but not more than five times the profit gained or the loss avoided by the violation: Provided, That the maximum amount of such fine shall be 300 million won if such person has no profit gained or loss avoided by the violation; or if it is impracticable to compute such profit or loss; or if the amount equivalent to five times the profit gained or the loss avoided by the violation does not exceed 300 million won:
1. A person who calculated a critical benchmark without being designated as an administrator of a critical benchmark under Article 5 (1) or without being subjected to a measure under Article 7 (3) 2;
2. A person who obtained the designation of an administrator of a critical benchmark under Article 5 (1) by fraud or any other improper means;
3. A person who engaged in submission or calculation by distortion, manipulation, or other improper means, in violation of Article 10 (1).
(2) Any person who fails to record and retain data, in violation of Article 6 (7), shall be punished by imprisonment with labor for up to one year or by a fine not exceeding 10 million won.
Article 19(Administrative Fines) #
(1) Any of the following persons shall be subject to an administrative fine not exceeding 10 million won:
1. A person who fails to establish the critical benchmark management committee, in violation of Article 6 (1);
2. A person who fails to enter into or maintain a contract related to submission, in violation of Article 6 (2);
3. A person who fails to publish the contents of an operational rule for calculation and matters relating to the management of conflicts of interest or who falsely publishes the same, in violation of Article 6 (3);
4. A person who fails to review the appropriateness of an operational rule for calculation under Article 6 (4);
5. A person who fails to conduct an inspection of compliance with an operational rule for calculation under Article 6 (5), to publish the result of such inspection, or to take any measure for a violation;
6. A person who changes any important provision of an operational rules for calculation without approval from the Financial Services Commission, in violation of the former part of Article 6 (6);
7. A person who fails to report the cessation of calculation, in violation of the former part of Article 7 (1) or (2);
8. A person who fails to report the cessation of submission, in violation of Article 8 (1) or (2);
9. A person who fails to prepare a contingency plan under Article 9 (2) or to reflect terms and conditions of a financial contract in such contingency plan.
(2) Any of the following persons shall be subject to an administrative fine not exceeding five million won:
1. A person who fails to publish matters relating to a change to the methods and procedures for the calculation of a critical benchmark in advance and to hear opinions thereon, in violation of the latter part of Article 6 (6);
2. A person who fails to publish matters relating to the cessation of calculation in advance and to hear opinions thereon, in violation of the latter part of Article 7 (1).
(3) Any of the following persons shall be subject to an administrative fine not exceeding three million won:
1. A person who fails to deliver a critical benchmark statement or to explain such statement at the time of entering into a financial contract, in violation of Article 9 (1);