1. Background and Purpose

Legislation of the consolidated asset management act is underway. I have been participating in the legislation process under an advisory capacity for the past years. Initially, in the year 2000, upon the request of the Ministry of Finance and Economy I have submitted a consultation report, where discussions on more needs for legislation and other issues on improving regulations were included. In the following year, as I prepared a report titled as 'Agenda for a Competitive CIS (Collective Investment Schemes) Industry' on request by the Korea Investment Trust Companies Association, I had another chance to study how to improve asset management regulation. Although I have tried to establish a logical background for a new asset management act through these reports, I had my own doubts on the prospect of the legislation process due to two main reasons. First, as I advanced the research on the topic of asset management regulation, I realized the number of related issues to be resolved kept increasing. Second, given that a lot of interest groups would be affected by the change in regulations, I thought it would be difficult for the government to embark on such a project during the transition period of political power.

However, out of the two, the latter turned out to be my miscalculation. In 2002, MOFE (the Ministry of Finance and Economy) made systematic efforts to carry out the legislation of the consolidated asset management act and on September 28th, the drafted bill was passed to the National Assembly. Although it is still open whether the National Assembly will approve the bill, I believe the development so far deserves its own record, which is the basis for my writing this paper.

With this backdrop, there are three goals for this study: To find the principle of regulations on Collective Investment Schemes in transferable securities by analyzing the US and the UK cases; thereby to evaluate the current state of the Korean regulation; and finally derive reform measures.

2. Summary

The rationale of regulatory intervention in the Collective Investment Schemes is to mitigate the 'agency problem' existing between investors and the asset manager. In this study, the fundamental principles of the regulatory intervention are summarized into three categories based on theoretical arguments and the analysis of the US and UK examples. The first is the elevation of market discipline by reducing the extent of information asymmetry. Some of the methods for implementing the principle include the daily market value accounting, prohibition of borrowings by investment funds, and rigorous enforcement of mandatory information disclosure. The second principle is the structuring of fund governance in such a way that a third party provides a monitoring function over the asset manager for investors. The third is the elevation of public surveillance discipline by specifying conducts such as 'conflict of interests' and banning such conducts.

After assessing the Korean regulation, three agendas are selected for review. First, a further examination must be conducted on the regulation system whether it should move from the institutional regulation regime to the functional regulation. Secondly, the importance of the fund governance needs to be acknowledged and a way to establish a third party monitoring function must be developed. Thirdly, a new plan must be devised to improve the efficiency of current regulating method for conducts of conflict.

In the paper, for the transition to the functional regulatory regime, the concept of "functional regulation" is first discussed. Then I indicate that the reform is fundamental to enhancing the market discipline, the strongest device in resolving the agency problem in asset management business. This argument is supported by the finding that the US and UK all adhere to the functional regulatory system, and that the reform in this direction is required by most of the exemplary reforms in the international scene. The two sub-topics specific for such a transition are then discussed. The fist sub-topic concentrates on the legal system. Regarding the legal issues, decree of a single law in the comprehensive form is proposed. The law should manifest itself on basis of the economic function of CIS, and bringing all the schemes performing the function under the rule.

The second sub-topic details how to distinguish the CIS from the bank trust. The third sub-topic discusses whether or not to allow banks to play the role of asset managers. Historically in Korea, the bank trust practically carried out the role of the Collective Investment Schemes in transferable securities. The regulatory problems arising from such a practice is that the difference between the trust system and the CIS has become thin in practice while not in regulation. In order to introduce the functional regulation, a clear-cut remedy for the problem must be devised. Noting that a similar problem existed in the US, a conclusion is drawn based on the analysis of the US experience. First of all, it is emphasized that the institution of trust and that of CIS have evolved to convey different economic functions, and thus must be distinguished in concept and also in regulation. This means that the bank trust should be strictly prohibited to carry out the role of the Collective Investment Schemes.

Regarding the next issue of reforming the investment fund governance, the regulation method for the legal formation of investment fund, the role of investors' general meeting, and the choice of the third monitoring party between the 'trustee' and the 'board of directors' are discussed. Analyzing cases of the US and UK, I argue that the regulations regarding the formation of the investment funds must be kept at a minimum. This specifically implies that both contract-type and corporate-type investment funds need to be allowed. This follows from the observation that no regulatory goal is achieved by selecting one of the two forms against the other. It is more appropriate, however, that the regulations regarding the structural formation of investment funds be all specified in the law governing the Collective Investment Schemes. This implies that the current regulation on the formation of company-type investment fund, which considers the investment fund as a joint stock company under the commercial law, needs to be changed.

With respect to the investors' general meeting, I argue that the regulation should introduce the meeting as a mandatory institution for an investment fund. Considering the actual economic function, however, the general meeting must be given a smaller function in comparison to stockholders' meeting of general joint stock companies.

Regarding the final sub-topic of third party monitoring, I identify the functions that the law should assign to the third party monitor. Then, I note that when analyzing the US and the UK examples, there are two types of third party monitoring: the trustee type and the board of director type. I suggest that the coexistence of two types should be seen as 'multiple equilibria' or 'path dependence', where initial conditions of a country determine which type to follow. Further, I contend that considering various circumstantial conditions, the appropriate type of third party monitoring for Korea is the trustee type.

3. Assessment

Collective Investment in Transferable Securities are defined to be an economic behavior which forms a fund by issuing residual claims to the general public, and manages the fund by investing in stocks and bonds. In the US, the CIS industry has already replaced the banking industry and is becoming the largest among financial industries in terms of the asset size. Although it may not be as spectacular as in the US, a substantial growth is also expected for the Korean CIS industry. At the same time in tandem with the expansion of the industry, the question of how to mitigate the agency problem in the CIS industry is expected to gain more importance.

But in spite of the recent efforts for the improvement, there seems to be much to be desired with regulations of the CIS. It has much to do with the fact that an international standard for the CIS regulation does not exist. In the absence of an international standard, previous to the financial crisis, we imported the regulatory framework from Japan. But as the operational mechanism of the Korean economy is changed, it has become clear that the previous Japanese system is now obsolete. Hence, it is time that Korea considers accepting the regulations applied in the US and the UK as a benchmark, since CIS institutions originate from the two countries and stable development has been observed for the past half century in both countries. This paper's contribution may be appreciated in this aspect. As far as my understanding, there has been no systematic study of either the US or the UK CIS regulations in Korea, not to mention of comparing one to the other.

** The rationale of regulatory intervention in the Collective Investment Schemes is to mitigate the 'agency problem' existing between investors and the asset manager. In this study, three agendas are selected for review: how to transform the current institutional regulation regime to a functional regulation; how to establish a third party monitoring function in the investment fund governance; how to improve the current regulating conducts concerning the conflict of interests.

발간사
저자서문
요 약
서 론

제1부 집합증권투자 규제의 이론과 실제

　제1장 집합증권투자 규제의 이론
　　1. 집합증권투자제도의 개요
　　　가. 집합증권투자제도의 정의
　　　나. 유사 금융제도와의 비교
　　　다. 집합증권투자제도의 종류
　　　라. 집합증권투자제도의 경제적 기능
　　2. 집합증권투자 규제의 이론
　　　가. 규제의 목적
　　　나. 규제의 방법

　제2장 집합증권투자 규제의 실제: 영국과 미국
　　1. 영미 집합증권투자제도와 법규의 연혁
　　　가. 영미 집합증권투자제도의 초기 연혁
　　　나. 영미 법규의 연혁
　　2. 영미 법규의 개요
　　　가. 규제의 목적
　　　나. 규제의 방법
　　3. 경제학적 해석
　　　가. 규제 목적의 해석
　　　나. 규제방법의 해석
　　　다. 종합: 집합증권투자 규제의 기본 원칙

제2부 우리나라 집합증권투자 규제의 개선방안 모색

　제3장 우리나라 집합증권투자 규제의 추이와 과제
　　1. 우리나라 집합증권투자 규제의 추이
　　　가. 유사은행기의 규제: 1969~1995
　　　나. 집합증권투자제도 실질화기의 규제:1995~최근
　　2. 집합증권투자 규제의 개선과제
　　　가. 기능별 규제로의 전환
　　　나. 3자 감시장치 구축에 중점을 둔 지배구조의 확립
　　　다. 이해상충행위

　제4장 기능별 규제로의 전환
　　1. 쟁점의 개요
　　　가. 기능별 규제의 의의
　　　나. 쟁점
　　2. 법 체계 문제
　　　가. 미국·영국·일본의 법 체계
　　　나. 사례의 경제학적 해석
　　　다. 시사점
　　3. 신탁제도와 집합증권투자제도의 구분 문제
　　　가. 미국·영국의 사례
　　　나. 사례의 경제학적 해석
　　　다. 시사점
　　4. 은행의 자산운용업 사내 겸영 문제
　　　가. 미국·영국의 사례
　　　나. 미국 사례의 경제학적 해석
　　　다. 시사점

　제5장 집합증권투자기금의 지배구조
　　1. 쟁점의 개요
　　　가. 투자기금 지배구조의 의의
　　　나. 쟁점
　　2. 투자기금의 조직형식
　　　가. 미국·영국의 사례
　　　나. 사례의 경제학적 해석
　　　다. 시사점
　　3. 투자자 총회와 3자 감시장치
　　　가. 미국·영국의 사례
　　　나. 사례의 경제학적 해석
　　　다. 시사점

　제6장 결 론

참 고 문 헌
부록: 미국 집합증권투자산업의 성장 추이