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MERCHANT BANKS ACT

MERCHANT BANKS ACT

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MERCHANT BANKS ACT

Wholly Amended by Act No. 5045, Dec. 29, 1995

Amended by Act No. 5374, Aug. 28, 1997

Act No. 5503, Jan. 13, 1998

Act No. 5750, Feb. 5, 1999

Act No. 5982, May 24, 1999

Act No. 6205, Jan. 28, 2000

Act No. 7428, Mar. 31, 2005

Act No. 8526, Jul. 19, 2007

Act No. 8863, Feb. 29, 2008

Act No. 8909, Mar. 14, 2008

CHAPTER GENERAL PROVISIONS

Article 1 (Purpose)

The purpose of this Act is to encourage merchant banks to realize steady growth so as to provide supports for the merchant banking services to enterprises and to make balanced improvement in the financial industry. Article 2 (Definitions)

For the purpose of this Act, the definitions of terms shall be as follows:

1. The term "merchant banks" means those which have obtained authoriza- tion from the Financial Services Commission pursuant to Article 3 to run the business listed in each subparagraph of Article 7 (1); 1-2. The term "short-term financial business" means business listed in Article 7 (1) 1 and business incidental thereto as determined by the Financial Services Commission pursuant to subparagraph 8 of the said Article and paragraph;

2. The term "securities" means securities under the Securities and Ex- change Act;

3. The term "equity capital" means the total amount of core capital and supplementary capital according to the standards set by the Bank for International Settlements, and the specific scope thereof shall be de- termined by the Financial Services Commission on such terms and con- MERCHANT BANKS ACT

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ditions as Presidential Decree may determine;

4. The term "credits" means loans, bill discounts, payment guarantees and purchase of securities (limited to those of fund assistance nature) or other direct and indirect transactions by merchant banks which in- volve credit risk, and the specific scope thereof shall be determined by the Financial Services Commission on such terms and conditions as Presidential Decree may determine; and

5. The term "large stockholder" means a stockholder falling under any of the following items:

(a) Largest stockholder: the principal in cases where the number of total outstanding stocks of a merchant bank with voting right held by him is the largest, which is calculated by adding all the stocks held by him and a person specially related to him (hereinafter referred to as the "specially related person") as prescribed by Presidential Decree, no matter whose name the accounts stand in; or (b) Major stockholder: a person who holds 10/100 or more of the total outstanding stocks of a merchant bank with voting right, no matter whose name the accounts stand in, or a stockholder who exercises de facto influence over the important matters of management of a merchant bank, such as appointment, dismissal, etc. of executives. Article 3 (Business Authorization, etc.)

(1) Those who intend to be engaged in the businesses prescribed by each subparagraph of Article 7 (1) shall obtain authorization from the Financial Services Commission. (2) Those who are eligible to obtain authorization under paragraph (1) shall satisfy the requisites falling under any of the following subparagraphs:

1. They shall be stock companies whose paid-in capital is not less than 30 billion won;

2. They shall be able to protect the investors and be equipped with physical facilities such as specialized manpower and electronic equip- ments that are enough to operate the intended business;

3. Their business plans shall be appropriate and sound; and

4. Large stockholders (including a stockholder who is a specially related person of the largest stockholder; if the largest stockholder is a corpo- MERCHANT BANKS ACT

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ration, including the stockholder who exercises de facto influence over the important matters of management of the corporation, who shall be prescribed by Presidential Decree; the same shall apply hereafter in this Article) shall be equipped with ample investment capabilities, sound financial status and social confidence.

(3) A person who intends to be a large stockholder by acquiring stocks of a merchant bank shall obtain approval from the Financial Services Commission in advance after meeting the requirements for healthy manage- ment prescribed by Presidential Decree from among the requirements for large stockholder pursuant to paragraphs (2) 4 and (8). (4) The Financial Services Commission may order to dispose of the stocks that have been acquired without obtaining approval pursuant to para- graph (3) within a period within 6 months that it determines. (5) Those who have acquired stocks without obtaining approval pur- suant to paragraph (3) may not exercise voting right of the portion of stocks that have been acquired without obtaining approval.

(6) Those who intend to obtain authorization under paragraph (1) shall file an application with the Financial Services Commission under the conditions as prescribed by Presidential Decree.

(7) The Financial Services Commission may attach a condition to authori- zation under paragraph (1).

(8) Matters necessary for detailed requirements for the authorization, approval and order of disposal in paragraphs (2) through (4) shall be prescribed by Presidential Decree.

Article 3-2 (Combining Short-Term Financial Business by Financial Insti- tutions)

(1) Financial institutions as determined by Presidential Decree may be engaged in short-term financial business on authorization by the Financial Services Commission.

(2) The standards, procedures or other necessary matters for authorization MERCHANT BANKS ACT

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under paragraph (1) shall be determined by Presidential Decree.

(3) The provisions of Articles 8 (1), 8 (2) 2, 13, 15, 21, 22 (1) through (3), 23 through 25, 26-2 and 27 (1) shall apply mutatis mutandis to financial institutions which have obtained authorization pursuant to paragraph (1), within the scope of the authorized business.

[This Article Newly Inserted by Act No. 5503, Jan. 13, 1998] Article 3-3 (Public Notice of Authorization, etc.) The Financial Services Commission shall, in case where it has granted authorization under Article 3 or 3-2, or cancelled authorization under Article 22 (2), publicly announce its contents, without delay, in the official Gazette, and notify the general public thereof by means of computer communications, etc.

[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000] Article 3-4 (Qualifications for Executives)

A person who falls under any of the following subparagraphs shall not be an executive of any merchant bank, and if he falls hereunder after becoming one, he shall lose the office:

1. An incompetent or quasi-incompetent person, or a person who was declared bankrupt and has not yet been reinstated;

2. A person who has been sentenced to imprisonment without prison labor or a heavier punishment, and five years have not elapsed since the expiration of the term of sentence (including cases where the execution has been deemed to be completed) or since the decision to exempt such sentence has been made;

3. A person who has been sentenced to a fine or a heavier punishment under this Act, finance-related Acts and subordinate statutes (hereinafter referred to as "finance-related Acts and subordinate stat- utes") or foreign finance-related laws and regulations (referring to for- eign laws and regulations corresponding to this Act or finance-related Acts and subordinate statutes), and five years have not yet elapsed since the completion (including cases where the execution has been deemed to be completed) or exemption of the execution;

4. A person who has been sentenced to suspended execution of imprison- MERCHANT BANKS ACT

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ment without prison labor or heavier punishment and who has been on probation;

5. A person who has been dismissed or discharged from office for disci- plinary measures under this Act, finance-related Acts and subordinate statutes or foreign finance-related laws and regulations, and three years have yet not elapsed;

6. A person who has been an executive or employee of a corporation or company whose permission or authorization, etc. have been cancelled under this Act, finance-related Acts and subordinate statutes or foreign finance-related laws and regulations (limited to the person who is directly or correspondingly responsible for the occurrence of causes for such cancellation and who is determined by Presidential Decree), and five years have not yet elapsed since the cancellation on the relevant corpo- ration or company; and

7. A retired executive or employee who would have been notified of an advice to resign (including dismissal) or request to resign under this Act, finance-related Acts and subordinate statutes, if he/she were holing office, and five years have not yet passed since the day of such notification (seven years from the day of retirement, if the day turning five years from the day of notification comes later than the day turning seven years from the day of retirement).

[This Article Newly Inserted by Act No. 5503, Jan. 13, 1998] Article 4 (Establishment of Branch)

Where any merchant bank intends to establish any branch, office or other business places having any similar title (including a dispatch office or management office engaged in part of the business, hereinafter referred to as "branch, etc."), it shall obtain authorization from the Financial Services Commission as prescribed by Presidential Decree.

[This Article Wholly Amended by Act No. 5503, Jan. 13, 1998] Article 5 (Appointment of Outside Directors)

(1) A merchant bank shall have three or more directors who are not engaged in the regular business of the board of directors, and who do not fall under any of the subparagraphs of paragraph (4) (hereinafter referred to as the "outside director"), and the number of outside directors shall not be less than half of the total number of directors. MERCHANT BANKS ACT

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(2) A merchant bank shall establish a committee pursuant to Article 393-2 of the Commercial Act (hereinafter referred to as the "candidate recom- mendation committee for outside directors") for the recommendation of candidates for outside directors. In this case, the candidate recommendation committee for outside directors shall have, as its members, outside directors who amount to not less than a half of the total members.

(3) Outside directors shall be appointed by the general meeting of stock- holders from among those who are recommended by the candidate recom- mendation committee for outside directors under paragraph (2). (4) A person who falls under any of the following subparagraphs shall not be eligible for an outside director of a merchant bank, and if he falls thereunder after becoming an outside director, he shall lose the post:

1. A minor, a incompetent or quasi-incompetent person;

2. A person who was declared bankrupt and has not yet been reinstated;

3. A person, who had been sentenced to imprisonment without labor or heavier, and two years have not yet passed since the decision to exempt such sentence has been made;

4. A person for whom two years have not passed since he was dismissed or removed from office pursuant to this Act;

5. The largest stockholder;

6. A specially related person of the largest stockholder;

7. A major stockholder, his/her spouse, lineal ascendant or descendant;

8. Person who is a full-time executive or employee, or has been a full-time executive or employee for last two years of the merchant bank or an affiliated company thereof (refers to the affiliated company pursuant to the Monopoly Regulation and Fair Trade Act; hereinafter the same shall apply);

9. Spouse, lineal ascendant or descendant of a full-time executive of the merchant bank;

10. A person who is a full-time executive or employee, or has been a full- time executive or employee for last two years of a corporation that is in the important business relationship, competitive relationship based upon business or cooperative relationship based upon business prescribed by Presidential Decree with the merchant bank; MERCHANT BANKS ACT

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11. A full-time executive or employee of a company in which a full-time executive or employee of the merchant bank works part-time; or

12. Other persons prescribed by Presidential Decree, who have difficulty faithfully performing their duties as outside directors or who may ex- ercise influence over the management of the merchant bank. (5) A merchant bank shall, in case where the composition of the board of directors comes not to comply with requisites under paragraph (1) due to a resignation or death, etc. of outside directors, make the composition of the board of directors comply with requisites under paragraph (1) at the regular general meeting of stockholders which is first convened after the date of occurrence of relevant causes.

[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000] Article 5-2 (Inspection Committee)

(1) A merchant bank shall establish an inspection committee (referring to the inspection committee under Article 415-2 of the Commercial Act; hereinafter the same shall apply). (2) The inspection committee shall meet all the requirements in the following subparagraphs:

1. That 2/3 or more of the members on the register shall be outside directors; and

2. That one or more of the members shall be specialists in accounting or financial affairs prescribed by Presidential Decree. (3) A person who falls under any of the subparagraphs 1 through 4 and 7 through 9 of Article 5 (4) shall not become a member who is not an outside director of the inspection committee, and he shall lose the position if he falls thereunder after he has become a member who is not an outside director of the inspection committee: Provided, That a person who holds office of a member of the inspection committee who is not an outside director may become a member who is not an outside director of the inspection committee even if he falls under Article 5 (4) 8.

(4) In cases where the composition of the inspection committee comes not to comply with requisites under paragraph (2) due to a resignation or death, etc. of members of the inspection committee, it shall make its composition comply with requisites under paragraph (2) at the regular general meeting of stockholders which is first convened after the date of MERCHANT BANKS ACT

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occurrence of the relevant causes.

(5) The proviso to Article 415-2 (2) of the Commercial Act shall not apply to the composition of the inspection committee under paragraph (1).

[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000] Article 5-3 (Criteria for Internal Control)

(1) A merchant bank shall set forth a basic procedures and criteria (herein- after referred to as "criteria for internal control") which shall be observed by the executives and employees in performing their duties, in order to observe Acts and subordinate statutes, to make a sound property manage- ment, and to protect the customers.

(2) A merchant bank shall have one or more persons who are to check whether the criteria for internal control is observed and to investigate and report thereon to the inspection committee (hereinafter referred to as "compliance officers") in a case of violation of the criteria for internal control.

(3) Matters necessary for the criteria for internal control under para- graph (1) and the compliance officers under paragraph (2) shall be prescribed by Presidential Decree.

[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000] Article 5-4 (Exercise of Minority Stockholders' Right) (1) A person who holds the stocks equivalent to not less than 5/100,000 of the total issued stocks of a merchant bank continually for not less than six months under the conditions as prescribed by Presidential Decree may exercise the stockholders' right as prescribed by Article 403 of the Commercial Act (including the cases applied mutatis mutandis by Articles 324, 415, 424-2, 467-2 and 542 of the Commercial Act).

(2) A person who holds the stocks equivalent to not less than 250/100,000 of the total issued stocks of a merchant bank (not less than 125/100,000 in a case of the merchant bank as prescribed by Presidential Decree) con- tinually for not less than six months under the conditions as prescribed by Presidential Decree may exercise the stockholders' right under Articles 385 (including the cases applied mutatis mutandis by Article 415 of the Commercial Act), 402, and 539 of the Commercial Act.

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(3) A person who holds the stocks equivalent to not less than 50/10,000 of the total issued stocks of a merchant bank (not less than 25/10,000 in a case of the merchant bank as prescribed by Presidential Decree) con- tinually for not less than six months under the conditions as prescribed by Presidential Decree may exercise the stockholders' right under Articles 363-2 and 466 of the Commercial Act. In this case, when exercising the stockholders' right under Article 363-2 of the Commercial Act, it shall be based upon the voting stocks. (4) A person who holds the stocks equivalent to not less than 150/10,000 of the total issued stocks of a merchant bank (not less than 75/10,000 in a case of the merchant bank as prescribed by Presidential Decree) con- tinually for not less than six months under the conditions as prescribed by Presidential Decree may exercise the stockholders' right under Articles 366 and 467 of the Commercial Act. In this case, when exercising the stockholders' right under Article 366 of the Commercial Act, it shall be based upon the voting stocks. (5) In case where the stockholders under paragraph (1) have won a case after instituting a suit under Article 403 of the Commercial Act (including the cases applied mutatis mutandis by Articles 324, 415, 424-2, 467-2 and 542 of the Commercial Act), they may request the merchant bank concerned to pay the litigation costs and all other expenses due to the suit.

[This Article Newly Inserted by Act No. 6205, Jan. 28, 2000] Article 6 (Prohibition on Use of Similar Names)

No person shall use the trade name "merchant bank" or any similar name without authorization under Article 3.

CHAPTER OPERATIONS

Article 7 (Business)

(1) Business of a merchant bank shall be as follows:

1. Issuance, discount, trade, brokerage, acceptance and guarantee of the bills or debentures as prescribed by Presidential Decree (limited to bills and debentures of which maturity comes within the period, as determined MERCHANT BANKS ACT

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by the Financial Services Commission up to the period of one year);

2. Making investments and loans to finance equipment or operating funds;

3. Business as provided in Article 2 (8) 5 through 7 of the Securities and Exchange Act;

4. Good offices of the inducement of foreign capital, overseas investments or other international financing, and borrowing and relending of foreign capital;

5. Issuance of bonds;

6. Services on management consultation and acquisitions or mergers of enterprises;

7. Payment guarantee; and

8. Business incidental to the business under subparagraphs 1 through 7 as determined by Presidential Decree.

(2) A merchant bank may carry out the business falling under any of the following subparagraphs as prescribed by relevant Acts, in addition to those under the preceding paragraph (1):

1. Equipment rental business under the Specialized Credit Financial Business Act;

2. Duties of asset management company under Article 4 (2) 1 and 2 of the Indirect Investment Asset Management Business Act and duties of selling company under Article 26 of the same Act;

3. Trust business under the Trust Business Act except cash trust business;

4. Business as provided in Article 2 (8) 1 through 4 of the Securities and Exchange Act;

5. Foreign exchange businesses under the Foreign Exchange Transactions Act; and

6. Other businesses as prescribed by Presidential Decree. (3) and (4) Deleted. Article 8 (Matters to be Authorized)

(1) Where a merchant bank intends to dissolve itself or close out all of its operations, it shall obtain authorization from the Financial Services Commission. (2) Where a merchant bank falls under any of the following subparagraphs, it shall report its contents to the Financial Services Commission within MERCHANT BANKS ACT

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seven days from the date on which such cause occurs: Provided, That for subparagraph 3, it shall report in advance to the Financial Services Commission:

1. Amendment of articles of incorporation;

2. Alteration of operational methods; and

3. Removal of the head office, or removal or closure of branches, etc. [This Article Wholly Amended by Act No. 5750, Feb. 5, 1999] Article 9 (Establishment of Fund Brokerage Companies) (1) Any person who intends to establish a company for brokerage of fund transactions between financial institutions (hereinafter referred to as "fund brokerage company") shall obtain approval from the Financial Services Commission.

(2) Requirements, procedures, or other necessary matters for approval under paragraph (1) shall be determined by Presidential Decree.

(3) The provisions of Articles 3-3, 6, 8 (excluding paragraph (2) 3 of the said Article), 20, 21, 22 (excluding paragraph (2) 2-2 of the said Article) through 26, and 26-2 shall apply mutatis mutandis to fund brokerage companies under paragraph (1). In this case, the term "merchant banks" shall be deemed to read "fund brokerage companies" and the term "authoriza- tion" in Article 22 (2) through (4) shall be deemed to read "approval".

[This Article Wholly Amended by Act No. 5503, Jan. 13, 1998] Article 10 (Issuance of Bonds)

(1) Notwithstanding the provisions of Article 470 of the Commercial Act, a merchant bank may issue bonds within the limits of ten times of its equity capital. (2) A merchant bank may issue bonds for repayment of the bonds as prescribed by paragraph (1) beyond the limit on a temporary basis. (3) Other requirements for the issuance of bonds shall be prescribed by Presidential Decree.

Article 11 (Operation of Duties of Asset Management Company, etc.) (1) A merchant bank may conduct the duties of establishment and termi- nation of investment trust and the duties of operation and operational instructions of investment trust property pursuant to Article 4 (2) 1 and MERCHANT BANKS ACT

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2 of the Indirect Investment Asset Management Business Act after obtaining permission from the Financial Services Commission, notwithstanding Article 14 of the same Act. In this case, a merchant bank may not concurrently operate duties as an asset management company and trustee company for the same investment trust.

(2) Deleted.

(3) The Financial Services Commission, for the purpose of paragraph (1), may designate or restrict types of businesses or method thereof. Article 12 Deleted. Article 13 (Accounting)

A merchant bank shall audit separate accounts for each class of business, as prescribed by the Financial Services Commission. Article 14 Deleted. Article 15 (Credit Line on Same Borrower, etc.)

(1) No merchant bank shall extend credits exceeding 25/100 of the mer- chant bank's equity capital to the same individual or corporation, or any person who shares credit risk with it (hereinafter referred to as the "same borrowers").

(2) No merchant bank shall extend credits exceeding the line as determined by Presidential Decree within the limits of 25/100 of the merchant bank's equity capital to the merchant bank's executives, subsidiaries, or any person who shares credit risk with them (hereinafter referred to as "inter- ested persons"). (3) Where individual credits which a merchant bank extends to the same borrowers exceed 10/100 of the merchant bank's equity capital, the total amount of such credits shall not exceed fives times of the merchant bank's equity capital.

(4) No merchant bank shall extend credits in excess of 20/100 of the mer- chant bank's equity capital to the same individual or corporation, individually.

(5) No merchant bank shall extend credits in excess of the line under paragraphs (1) through (4): Provided, That this shall not apply hereunder as determined by Presidential Decree:

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1. Where it is necessary for the national economy or for a merchant bank to promote the effectiveness of securing claims; and

2. Where a merchant bank exceeds the line under paragraphs (1) through (4) due to changes in its equity capital or changes in the composition of the same borrowers although the merchant bank did not extend further credits.

(6) Where a merchant bank exceeds the line under paragraphs (1) through (4) pursuant to paragraph (5) 2, it shall ensure that it meets the line under paragraphs (1) through (4) within one year from the date on which it exceeds such line: Provided, That in any inevitable cause as determined by Presidential Decree, the Financial Services Commission may extend it by setting a period. (7) The specific scope of the same borrowers and interested persons under paragraphs (1) and (2) shall be determined by Presidential Decree. [This Article Wholly Amended by Act No. 5750, Feb. 5, 1999] Articles 15-2 through 15-4 Deleted. Article 16 (Restriction, etc. on Transaction with Large Stockholder) (1) The sum of credit grant that a merchant bank can extend to its large stockholder (including a specially related person thereof; the same shall apply hereafter in this Article and Article 16-2) shall not exceed the limit prescribed by Presidential Decree, which is within the extent of 25/100 of the equity capital of the merchant bank, and the large stockholder shall not receive credit grant in excess of the limit from the merchant bank. (2) When a merchant bank intends to extend credit grant more than the amount prescribed by Presidential Decree within the extent of paragraph (1) (including transactions prescribed by Presidential Decree; the same shall apply hereafter in this Article) to its large stockholder, or to acquire stocks issued by the large stockholder more than the amount prescribed by Presidential Decree, it shall go through the resolution of the board of directors in advance. In this case, the board of directors shall pass resolution with the approval of all the directors on the register. (3) When a merchant bank has extended credit grant to its large stockholder for an amount more than the amount prescribed by Presidential Decree, or has acquired stocks issued by its large stockholder more than the amount prescribed by Presidential Decree as referred to in paragraph (2), it shall report the fact to the Financial Services Commission without delay, and MERCHANT BANKS ACT

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shall announce it in public by means of internet homepage, etc.

(4) A merchant bank shall put together matters prescribed by Presidential Decree from among the matters of report concerning the extension of credit grant to its large stockholder or acquisition of stocks issued by its large stockholder, shall report them to the Financial Services Commission every quarter of a year, and shall announce it in public by means of internet homepage, etc. (5) Where a merchant bank exceeds the extent prescribed in para- graph (1) due to a change in equity capital, change of large stockholder, etc. even though it has not extended additional credit grant, it shall suit to paragraph (1) within the period prescribed by Presidential Decree. (6) Where there is an unavoidable reason due to the time limit, scale, etc. of credit grant notwithstanding paragraph (5), a merchant bank may extend the period with the approval of the Financial Services Commission.

(7) The merchant bank that intends to obtain approval pursuant to para- graph (6) shall submit a detailed plan to suit with the extent pursuant to paragraph (1) to the Financial Services Commission by three months prior to the period pursuant to paragraph (5) expires, and the Financial Services Commission shall determine and notify whether it approves the detailed plan within one month from the date it receive it.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 16-2 (Prohibition of Exercising Unjust Influence by Large Stock- holder)

The large stockholder of a merchant bank shall not conduct an act falling under any of the following subparagraphs with the object of his own interest contrary to the interest of the merchant bank:

1. Act of requesting the merchant bank for data or information that is not open to the outside in order to exercise unjust influence: Provided, That the cases falling under the exercise of right pursuant to Article 466 of the Commercial Act shall be excluded;

2. Act of exercising unjust influence over the personnel affair or manage- ment of a merchant bank in collusion with other stockholders on con- dition that return service, such as economic benefit, etc. shall be granted; or

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3. Other acts corresponding to subparagraphs 1 and 2, which are prescribed by Presidential Decree.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 16-3 (Request, etc. for Submission of Data to Merchant Bank, etc.) (1) When the Financial Services Commission recognizes that a merchant bank or its large stockholder is suspicious of violating Articles 16 and 16-2, it may request the merchant bank or large stockholder to submit necessary data. (2) In cases where the sound management of a merchant bank is appre- hended to be markedly damaged due to unreliable financial structure, such as an excess of liability over asset of the large stockholder (limited to a company) of a merchant bank, etc., which shall be prescribed by Presidential Decree, the Financial Services Commission may take measures, against the relevant merchant bank, in the following subparagraphs:

1. Prohibition of extending new credit grant to large stockholder;

2. Prohibition of new acquisition of securities issued by large stockholder; and

3. Other measures prescribed by Presidential Decree, such as restriction, etc. on transactions with the character of money supply to large stock- holder.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 16-4 (Report of Change in Allotment of Large Stockholder) Where it falls under any of the following subparagraphs, a merchant bank shall report the fact to the Financial Services Commission as prescribed by Presidential Decree:

1. When the largest stockholder has been changed; or

2. When 1/100 or more of the total outstanding stocks with voting right held by large stockholder has been changed.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 17 (Investment Limit to Securities)

(1) Except as otherwise prescribed by Presidential Decree, a merchant bank shall not invest in securities in excess of 100/100 of its capital equity: Provided, That the national bonds and the currency stabilization bonds issued by the Bank of Korea shall not be included in such amount. (2) The Financial Services Commission may otherwise determine, as deems MERCHANT BANKS ACT

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necessary, the investment limit to stocks and financial derivatives which are securities, under the conditions as prescribed by Presidential Decree, within the scope of investment limit referred to in paragraph (1).

Article 17-2 (Prohibition of Activities Related to Fund Supports) (1) A merchant bank belonging to the enterprise group subject to the limi- tations on mutual investment under Article 9 (1) of the Monopoly Regulation and Fair Trade Act (hereafter referred to as the "enterprise group subject to the limitations on mutual investment" in this Article) shall not perform the activities falling under any of the following subparagraphs with a finan- cial institution (referring to the financial institution under the Act on the Structural Improvement of the Financial Industry; hereafter the same shall apply in this Article) or company belonging to other enterprise group subject to the limitations on mutual investment:

1. Activities to make a mutually crossing possession of voting stocks of another financial institution or company or render a mutually crossing extension of credits for the purpose of evading the limit under Article 15, 16 or 17;

2. Activities to make a mutually crossing acquisition of stocks for the purpose of evading the limit on the acquisition of treasury stocks under Article 341 of the Commercial Act or Article 189-2 of the Securities and Exchange Act; and

3. Other activities which are likely to harm greatly the interests of the depositors and investors as determined by Presidential Decree. (2) A merchant bank may not exercise the voting right of the stocks which have been acquired in contravention of paragraph (1). (3) A merchant bank may not render credits for the purchase of relevant merchant bank's stocks.

(4) The Financial Services Commission may take necessary measures such as ordering the merchant bank which has acquired stocks or rendered credits in contravention of paragraph (1) or (3) to dispose of the relevant stocks or recover the credits. [This Article Newly Inserted by Act No. 6205, Jan. 28, 2000] Article 18 (Holding of Reserve Requirement Assets) MERCHANT BANKS ACT

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In order to ensure repayment of liabilities and urgent withdrawals, a mer- chant bank shall hold reserve requirement assets under the conditions as prescribed by Presidential Decree.

Article 19 (Restriction on Acquisition of Real Estate) (1) A merchant bank shall not acquire or own real estate except for its own business purposes: Provided, That, it does not apply to that acquired through the foreclosure of mortgage.

(2) A merchant bank may not acquire real estate, for its own business purpose, in excess of 100/100 of its equity capital.

(3) A merchant bank shall dispose of its real estate other than that for its own business purpose or which has been acquired pursuant to the proviso of paragraph (1) as prescribed by Presidential Decree.

(4) The scope of real estate for business purpose referred to in the main sentence of paragraph (1) shall be determined by Presidential Decree.

Article 20 (Prohibition of Holding Concurrent Positions) An executive engaged in full-time work of a merchant bank shall, if he intends to be engaged in full-time work of any other profit-making corpo- ration, obtain permission from the Financial Services Commission.

[This Article Wholly Amended by Act No. 5750, Feb. 5, 1999] CHAPTER SUPERVISION

Article 21 (Supervision)

The Financial Services Commission may supervise the business of a mer- chant bank as well as give necessary instructions.

Article 21-2 (Sound Management Guidance)

(1) The Financial Services Commission may determine the standards for management guidance falling under any of the following subparagraphs in order to give sound management guidance to merchant banks and to prevent financial accidents, on such terms and conditions as Presidential Decree may determine: MERCHANT BANKS ACT

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1. Financial soundness standards;

2. Asset quality classification standards;

3. Accounting and closing standards; and

4. Risk management standards. (2) Merchant banks shall, in conducting their business, comply with the sound management standards under paragraph (1).

[This Article Newly Inserted by Act No. 5750, Feb. 5, 1999] Article 22 (Administrative Disposition)

(1) Where the Financial Services Commission deems that a merchant bank threatens to impair the sound operation as it violates this Act or an order under this Act, it may take the following measures:

1. Notice and warning to a merchant bank or notice, warning, and request for reprimand to its executives or employees;

2. Corrective order for such offense;

3. Advice to resign or suspension of duties of executives or the appointment of a manager acting for such executives;

3-2. Request to resign to employees; and

4. Suspension of part of operations for not more than six months. (2) Where a merchant bank falls under any of the following subpara- graphs, the Financial Services Commission may order it to suspend all of its operations by setting a period of not more than six months, make a decision on contract transfer, or cancel its authorization:

1. Where it obtains authorization on business by fraudulent or by illegal means;

2. Where it commits any act falling under Article 8 (1) without obtaining authorization under the said Article and paragraph; 2-2. Where it is judged difficult to pay claims such as deposits or redeem borrowings, or it is deemed obvious to impair the sound credit order or the rights and interests of depositors, etc. if it continues to conduct business, falling short of the standards for management guidance under Article 21-2;

3. Where it carries on any operations during a suspension of operations under paragraph (1) 4 above; or

4. Where it fails to fulfill corrective orders under paragraph (1) 2. MERCHANT BANKS ACT

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(3) Deleted.

(4) Where the Financial Services Commission cancels the authorization pursuant to paragraph (2), the merchant bank shall be dissolved. Article 22-2 Deleted. Article 23 (Hearing)

Where the Financial Services Commission intends to cancel authorization on business of a merchant bank pursuant to Article 22 (2), he shall hold a hearing.

[This Article Wholly Amended by Act No. 5503, Jan. 13, 1998] Article 24 (Public Notice of Management Status)

(1) The Financial Services Commission may have a merchant bank file reports on the status of business operations and assets when necessary. (2) A merchant bank shall submit reports on its operations and financial status periodically to the Financial Services Commission as determined by the Financial Services Commission. (3) The Financial Services Commission shall periodically announce im- portant information on financial soundness and operating conditions of merchant banks as determined by Presidential Decree. (4) The Financial Services Commission shall, for matters necessary to protect depositors and maintain credit order as determined by Presidential Decree, make a public notification of related matters without delay on such terms and conditions as the Financial Services Commission may determine. Article 24-2 Deleted. Article 25 (Inspection)

(1) The Governor of the Financial Supervisory Service established under the Act on the Establishment, etc. of Financial Services Commission (hereinafter referred to as the "Governor of Financial Supervisory Ser- vice") may have the employees under his control inspect the operations and financial status of a merchant bank.

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(2) The Governor of the Financial Supervisory Services may, in case where deemed necessary for the inspection under paragraph (1), request a mer- chant bank to submit the data or to have the related parties present themselves to state their opinions.

(3) A person who makes the inspection under paragraph (1) shall carry a certificate indicating his authority and show it to the persons concerned. [This Article Wholly Amended by Act No. 6205, Jan. 28, 2000] Article 25-2 (Notification to Retired Executives, etc. of Measures Taken) (1) The Financial Services Commission may have the Governor of Fi- nancial Services Commission to notify the head of relevant merchant bank of the measures deemed to be taken, if a retired executive or employee of the merchant bank, who would have been notified of measures falling under Article 22 (1) 3 or 3-2, if he/she were holing office. (2) The head of relevant merchant bank who received such notification pursuant to paragraph (1) shall notify the relevant executive or employee, record and retain it.

[This Article Newly Inserted by Act No. 8909, Mar. 14, 2008] CHAPTER SUPPLEMENTARY PROVISIONS

Article 26 (Entrustment of Authority)

(1) Deleted.

(2) The Financial Services Commission may entrust part of its authority under this Act to the Governor of Financial Supervisory Services as pre- scribed by Presidential Decree.

Article 26-2 (Contributions)

(1) A merchant bank which undergoes an inspection by the Financial Supervisory Services pursuant to Article 25 shall pay contributions for appropriating for the inspection expenses to the Financial Supervisory Service.

(2) The sharing ratio, limit or other matters necessary for the payment of contributions referred to in paragraph (1) shall be determined by Presidential Decree.

[This Article Newly Inserted by Act No. 5503, Jan. 13, 1998] Article 27 (Relations with Other Acts)

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(1) The Bank of Korea Act and the Banking Act shall not apply to merchant banks established under this Act. (2) When a merchant bank performs such operations prescribed by Article 7, pertinent Acts shall apply to each operation, except as otherwise pre- scribed by this Act: Provided, That the provisions of Articles 7 (1), 13, 15 (1) and 16 of the Trust Business Act shall not apply.

(3) Bonds issued by the merchant bank pursuant to Article 10 shall be deemed to be bonds under Article 2 (1) 3 of the Securities and Exchange Act.

(4) Where the Financial Services Commission takes an administrative dis- position with regard to merchant banks pursuant to Article 22, the provisions of Articles 10 (2) and (3), 14 (5) through (7) and (9), 14-2, 14-3, 14-5, and 15 through 23 of the Act on the Structural Improvement of the Financial Industry shall apply, except as otherwise prescribed by this Act.

CHAPTER - IMPOSITION AND

COLLECTION OF PENALTY

SURCHARGE

Article 27-2 (Imposition of Penalty Surcharge)

When a merchant bank has violated Article 16 (1), the Financial Services Commission may collect a penalty surcharge from the merchant bank within the extent of 20/100 of the amount of credit grant that is in excess of the limit. [This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 27-3 (Standard, etc. for Imposition of Penalty Surcharge) (1) The standard for imposition of penalty surcharge pursuant to Article 27-2 shall be prescribed by Presidential Decree in consideration of the matters in the following subparagraphs:

1. Contents and degree of violations;

2. Period and frequency of violations; and

3. Scale of benefit obtained from violations. (2) Other matters necessary for the imposition of penalty surcharge shall MERCHANT BANKS ACT

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be prescribed by Presidential Decree.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 27-4 (Submission of Opinion)

(1) The Financial Services Commission shall give the person concerned, parties interested, etc. an opportunity to submit opinion before it imposes penalty surcharge. (2) The person concerned, parties interested, etc. may attend the meetings of the Financial Services Commission and state opinion or submit necessary data.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 27-5 (Raising Objection)

(1) A person who is dissatisfied with the disposition of imposition of penalty surcharge pursuant to Article 27-2 may raise an objection to the Financial Services Commission after meeting the causes within 30 day from the date when he has been notified of the disposition.

(2) The Financial Services Commission shall make a decision within 30 days from the date when it has received an objection: Provided, That it is not possible to make a decision within the period due to an unavoidable reason, the period may be extended within the extent of 30 days.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 27-6 (Extension of Time Limit of Payment and Installment Payment of Penalty Surcharge)

(1) When the Financial Services Commission recognizes that the person (hereinafter referred to as the "person obliged to pay penalty surcharge") who been given disposition of penalty surcharge is not able to pay the total amount of penalty surcharge at a time due to a reason falling under any of the following subparagraphs, it may have the time limit of payment extended or have it paid in installments. In this case, it may have him provide guarantee when it is deemed necessary:

1. Where property has been substantially damaged due to disaster, etc.;

2. Where business is in grave crisis as the business conditions have grown worse;

3. Where grave difficulties for money are expected following the payment of penalty surcharge at a time; or

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4. Where there are other causes corresponding to subparagraphs 1 through

3. (2) Where the person obliged to pay penalty surcharge intends to have the time limit of payment of penalty surcharge extended pursuant paragraph (1) or to pay penalty surcharge in installments, he shall file an application to the Financial Services Commission by ten days before the time limit of payment. (3) When the person obliged to pay penalty surcharge to whom the time limit of payment has been extended, or to whom payment in installments has been allowed falls under any of the following subparagraphs, the Financial Services Commission may revoke the decision of extension of time limit of payment or payment in installments, and collect the penalty surcharge at a time:

1. Where he has failed to pay penalty surcharge within the time limit of payment, to which payment in installments has been decided;

2. Where he has failed to conduct an order of the Financial Services Commission, which is necessary for the change of surety or preservation of surety;

3. Where it is recognized that all or remainder of penalty surcharge cannot be collected because of compulsory execution, commencement of auction, declaration of bankruptcy, dissolution of a corporation, disposition on default of national taxes or local taxes, etc.; or

4. Other cases corresponding to subparagraphs 1 through 3, where there are causes prescribed by Presidential Decree.

(4) Matters necessary for the extension of time limit of payment of penalty surcharge, instalment payment, surety, etc. pursuant to paragraphs (1) through (3) shall be prescribed by Presidential Decree. [This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] Article 27-7 (Collection of Penalty Surcharge and Disposition on Default) (1) When the person obliged to pay penalty surcharge has not paid the penalty surcharge within the period of payment, the Financial Services Commission may collect additional charges prescribed by Presidential Decree for the period starting from the day next to the time limit of payment until the day before the day when payment was made.

(2) When the person obliged to pay penalty surcharge has not paid the MERCHANT BANKS ACT

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penalty surcharge within the period of payment, the Financial Services Commission may urge him to pay within the period that it determines, and may collect penalty surcharge and additional charges pursuant to para- graph (1) in accordance with the examples of disposition on default of national taxes if he has failed to pay them within the designated period.

(3) The Financial Services Commission may entrust the duties of collection of penalty surcharge and additional charges or the duties of disposition on default pursuant to paragraphs (1) and (2) to the Commissioner of the National Tax Service. (4) Other matters necessary for the collection of penalty surcharge shall be prescribed by Presidential Decree.

[This Article Newly Inserted by Act No. 8526, Jul. 19, 2007] CHAPTER PENAL PROVISIONS

Article 28 (Penal Provisions)

(1) A person who falls under any of the following subparagraphs shall be punished by imprisonment for not more than three years or by a fine not exceeding 20 million won:

1. A person who carries out operations comprehensively under any of sub- paragraphs of Article 7 (1) without authorization under Article 3; 1-2. A person who carries out short-term financial business without author- ization under Article 3-2 (1);

2. A person who establishes a brokerage company for fund transactions without approval under Article 9 (1);

3. A merchant bank that has extended credit grant to a large stockholder or a specially related person of the large stockholder in violation of Article 16 (1), and the large stockholder or a specially related person of the large stockholder who has been extended credit grant by the merchant bank; or

4. Large stockholder or a specially related person of the large stockholder who has conducted an act falling under any of the subparagraphs of Article 16-2 in violation of the same Article.

(2) A person who falls under any of the following subparagraphs shall MERCHANT BANKS ACT

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be punished by imprisonment of not more than 1 year or by a fine not exceeding 7 million won:

1. A person who has acquired stocks of a merchant bank without obtaining approval in violation of Article 3 (3);

2. A person who has not disposed of the stocks in violation of an order pursuant to Article 3 (4);

3. A person who has used the title of merchant bank or a similar one thereof in violation of Article 6;

4. A person who has conducted an act falling under Article 8 (1) without obtaining authorization pursuant to the same paragraph [including the cases where it applies mutatis mutandis in Articles 3-2 (3) and 9 (3)]; or

5. A merchant bank that has extended credit grant in violation of Article 15 (1) through (4) [including the cases where it applies mutatis mutandis in Article 3-2 (3)].

(3) A person who violates the provisions of Articles 17 through 19 shall be punished by a fine not exceeding 5 million won.

Article 29 (Joint Penal Provision)

When a representative of a juristic person or agent, employee or other servant of a juristic person or individual commits an act of offense of Article 28 in connection with the business of the juristic person or individual, the juristic person or individual shall be punished by a fine under the same Article in addition to punishment of the offender. Article 30 (Fine for Negligence)

(1) A person who falls under any of the following subparagraphs (including where Articles mentioned in the following subparagraphs apply mutatis mutandis under Articles 3-2 (3) and 9 (3)) shall be punished by a fine for negligence not exceeding 5 million won:

1. A person who fails to make a report under the main sentence of Article 8 (2) or makes a false report;

2. A person who performs, without filing a report under the proviso to Article 8 (2), an act falling under subparagraphs 3 of the said para- graph of the same Article;

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2-2. A merchant bank that has not gone through the resolution of the board of directors in violation of Article 16 (2); 2-3. A merchant bank that has not made a report to the Financial Services Commission or has not made public notice in violation of Article 16 (3) and (4) or 16-4;

2-4. A merchant bank or large stockholder who has not complied with a request for submission of data from the Financial Services Commission pursuant to Article 16-3 (1);

3. A person who violates the provisions of Article 20;

4. A person who fails to file reports or make public notice of management status under Article 24, or makes false report or public notice of manage- ment status;

4-2. Deleted; or

5. A person who refuses, interferes with or evades the inspection under Article 25.

(2) A fine for negligence prescribed by paragraph (1) shall be imposed and collected by the Financial Services Commission as prescribed by Presidential Decree.

(3) A person who is dissatisfied with the disposition of the fine for negli- gence under paragraph (2) above may file an objection against the Financial Services Commission within 30 days after receiving the notice of the disposition.

(4) Where a person subject to the disposition of the fine for negligence files an objection under paragraph (3) above, the Financial Services Com- mission shall notify the competent court without delay, and the competent court notified shall initiate legal procedures on the fine for negligence under the Non-Contentious Case Litigation Procedure Act.

(5) Where no objection is raised or no fine for negligence is paid within the period prescribed by in paragraph (3) above, it shall be collected pursuant to the examples of dispositions on default of national taxes. ADDENDA

Article 1 (Enforcement Date)

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This Act shall enter into force on April 1, 1996. Article 2 (Transitional Measures for Merchant Banks and Short-Term Finance Corporations)

(1) Any merchant bank in operation at the time this Act enters into force shall be deemed a merchant bank authorized under this Act. (2) When a short term finance corporation authorized under Article 3 of the Short-Term Financing Business Act at the time this Act enters into force intends to convert into a merchant bank under this Act, a business authorization shall be obtained under this Act as designated by the Minister of Finance and Economy. In this case, the provisions of Article 3 (2) shall not apply.

(3) The amended provisions of Article 4 shall not apply to the branch offices, etc. which have been established at the time of enforcement of this Act enters into force, by those who are deemed to have obtained authoriza- tion or have obtained, as a merchant bank under paragraphs (1) and (2). Article 3 (Transitional Measures on Capital Equity) A merchant bank, licensed or deemed to have obtained a license, which fails to comply with the capital requirement pursuant to the amended provisions of Article 3 (2) from among those deemed to have obtained authorization or have obtained authorization under Article 2 (1) and (2) of the Addenda shall conform to the amended provisions within 3 years of the date of enforcement of this Act (if the capital increase is not made within 3 years, or within an extended term authorized for such capital increase by the Minister of Finance and Economy if capital increase plan is approved).

Article 4 (Transitional Measures for Call Transaction) A short-term finance corporation approved to act as the brokerage house for call transaction under Article 7 (1) 5 of the Short-Term Financing Business Act, at the time this Act enters into force, may be engaged in the operation thereof, as from the date of authorization for the merchant bank under Article 2 (2) of this Addenda until the date of incorporation of the brokerage company for call transactions.

Article 5 (Transitional Measures on Penal Provisions) The application of penal provisions to acts committed prior to enforcement of this Act shall be governed by previous provisions. Article 6 (Transitional Measures on Authorization and Permission, etc.) Where any merchant bank, which is deemed to have obtained author- ization or have obtained authorization pursuant to Article 2 (1) and (2) MERCHANT BANKS ACT

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of the Addenda has obtained authorization, permission, approval, etc. under the previous provisions or under the Short-Term Financing Business Act shall be deemed to have obtained authorization, permission, approval, etc., respectively under this Act.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on January 1, 1998. Articles 2 through 7 Omitted.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on April 1, 1998: Provided, That an amend- ment to Article 23 shall enter into force on January 1, 1998. Article 2 (Abolished Act)

The Short-Term Financial Business Act shall be hereby abolished. Article 3 (Examples of Application on Qualifications, etc. for Executives) An amendment to Article 3-3 shall apply to executives first appointed after the entry into force of this Act.

Article 4 (Examples of Application on Discipline against Executives and Employees)

An amendment to Article 22-2 shall apply to acts first performed by officers and employees after the entry into force of this Act. Article 5 (Examples of Application on Matters to be Reported) An amendment to Article 24-2 shall apply to matters to be reported first after the entry into force of this Act.

Article 6 (General Transitional Measures)

(1) Any authorization, order or other acts done by the Minister of Finance and Economy to a merchant bank under the previous provisions prior to the entry into force of this Act shall be deemed to be acts done by the Minister of Finance and Economy, the Financial Supervisory Commission or the Governor of the Financial Supervisory Service under this Act. (2) Any declaration, report or other acts done by a merchant bank to the Minister of Finance and Economy under the previous provisions prior to the entry into force of this Act shall be deemed to be acts done to the Minister of Fiance and Economy, the Financial Supervisory Commission or the Governor of the Financial Supervisory Service. MERCHANT BANKS ACT

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Article 7 (Transitional Measures on Brokerage Companies for Call Transac- tions)

Brokerage companies for call transactions established under the previous provisions at the time of the entry into force of this Act shall be deemed to be fund brokerage companies established under this Act. Article 8 Deleted. Article 9 (Transitional Measures on Penal Provisions) The application of penal provisions and fines for negligence to acts which Financial Business Act performed prior to the entry into force of this Act shall be governed by the previous Merchant Bank Act or the Short-Term Financial Business Act.

Article 10 Omitted.

Article 11 (Transitional Measures on Penal Provisions Pursuant to Amend- ment of Other Acts)

The application of the Act on Special Cases concerning the Punishment of Specific Violent Crimes to executives and employees of a short-term financial company under the previous Short-Term Financial Business Act or persons who violated the provisions of Article 23 (1) of the Short-Term Financial Business Act prior to the entry into force of this Act shall be governed by the previous provisions.

Article 12 (Relations with Other Acts and Subordinate Statutes) Where the Acts and subordinate statutes cite the previous Short-Term Financial Business Act or its provisions at the time of the entry into force of this Act and if this Act includes the provisions corresponding to them, they shall be deemed to have cited this Act or the provisions corresponding to this Act.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on April 1, 1999. Article 2 (Transitional Measures on Credit Line on Same Borrowers, etc.) (1) Where a merchant bank exceeds the line under the amendments to Article 15 (1) at the time of the entry into force of this Act, it shall en sure that it meets the line not later than June 30, 2003. (2) Where a merchant bank exceeds the line under the amendments to Article 15 (2) at the time of the entry into force of this Act, it shall ensure that it meets the line not later than December 31, 2000. (3) Where a merchant bank exceeds the line under the amendments to MERCHANT BANKS ACT

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Article 15 (3) and (4) at the time of the entry into force of this Act, it shall ensure that it meets the line not later than June 30, 2000. (4) The merchant bank shall reduce credits exceeding the line by stages on such terms and conditions as Presidential Decree may determine within the limit of the period under paragraphs (1) through (3), and shall submit its schedule to the Financial Services Commission within one month from the date of the entry into force of this Act.

(5) Where a merchant bank exceeds the line under the amendments to Article 15 (1) through (4), it shall not extend new credits to the same borrowers or interest persons until it meets the line. ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation. (Proviso Omitted.)

Articles 2 through 6 Omitted.

ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force three months after the date of its promulgation: Provided, That the amendments to Articles 5, 5-2 and 5-4 shall enter into force on the date of its promulgation.

Article 2 (Transitional Measures following Alterations in Causes for Dis- qualification of Executives of Merchant Banks)

Where a person who is an executive of a merchant bank at the time of enforcement of this Act comes to fall under the causes for disqualification as provided for in the amendment to subparagraph 6 of Article 3-4 due to the causes which occurred prior to the enforcement of this Act, the previous provisions shall govern, notwithstanding the said amendment. Article 3 (Transitional Measures concerning Appointments of Outside Directors)

A merchant bank shall appoint the outside directors under the amendment to Article 5 at the regular general meeting of stockholders first convened after the enforcement of this Act. In this case, the persons appointed to outside directors at the relevant regular general meeting of stockholders shall be deemed to have been recommended by the candidate recom- mendation committee for outside directors under Article 5 (3). MERCHANT BANKS ACT

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Article 4 (Transitional Measures concerning Establishment of Inspection Committee)

A merchant bank shall establish an inspection committee under the amendment to Article 5-2 at the regular general meeting of stockholders first convened after the enforcement of this Act. Article 5 (Transitional Measures concerning Full-Time Auditor following Establishment of Inspection Committee)

A person who holds office of a full-time auditor of a merchant bank at the time of enforcement of this Act (referring to the full-time auditor des- ignated by the board of directors of the relevant merchant bank, when there are two or more full-time auditors) shall, in case where his term of office does not expire by the date of regular general meeting of stock- holders first convened after the enforcement of this Act and he is not dismissed at the relevant general meeting of stockholders, be deemed as a member who is not an outside director from among the members of in- spection committee of the relevant merchant bank until the expiry of his term of office. In this case, the relevant full-time auditor shall be deemed as a director who is appointed at the general meeting of stockholders under Article 382 (1) of the Commercial Act until the expiry of his term of office.

Article 6 (Transitional Measures concerning Provision of Criteria for Internal Control)

A merchant bank shall provide for the criteria for internal control under the amendment to Article 5-3 within six months after the enforcement of this Act.

Article 7 (Transitional Measures concerning Prohibition of Activities Re- lated to Fund Supports)

In case where a merchant bank comes to fall under a contravention of the amendment to Article 17-2 due to an activity prior to the enforcement of this Act, it shall dispose of or recover the relevant stocks or credits within six months after the enforcement of this Act. ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force one year after the date of its promulgation. Articles 2 through 6 Omitted.

ADDENDA

Article 1 (Enforcement Date)

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This Act shall enter into force six months after the date of its promul- gation.

Article 2 (Applicability concerning Imposition of Penalty Surcharge) The amended provisions of Article 27-2 shall apply beginning with the merchant bank that has extended credit grant in violation of Article 16 (1) for the first time after this Act enters into force. Article 3 (Transitional Measures concerning Members of Audit Commit- tee)

The merchant bank that has to appoint members of the audit committee pursuant to the amended provisions of Article 5-2 (2) and (3) shall appoint members of the audit committee as to suit to the same amended provisions not later than the date of regular stockholders' meeting that shall be convoked for the first time after this Act enters into force. Article 4 (Transitional Measures concerning Operation of Duties of Asset Management Company, etc.)

The merchant bank that has received authorization pursuant to the former Article 11 (1) at the time when this Act enters into force shall be deemed to have received permission from the Financial Services Commission pur- suant to the amended provisons of Article 11 (1). ADDENDA

Article 1 (Enforcement Date)

This Act shall enter into force on the date of its promulgation. Articles 2 through 5 Omitted.

ADDENDA

(1) (Enforcement Date) This Act shall enter into force on the date of its promulgation.

(2) (Applicability concerning Changes on Executives' Qualification) The amended provisions of Article 3-4 shall apply to a person who becomes disqualified due to the first ground occurs after this Act enters into enforcement.


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