Korea-EU FTA - Financial Services

Presentation for Korea-EU FTA Seminar

Dr. Jong-Goo YI

| June 20, 2011

2 l

Contents 1. The Korea-EU FTA: Overview

2. Market Access

3. Cross-Border Supply of Services

4. Offshore Business Delegation/Outsourcing

5. Offshore Data Processing

6. Transfer of Personal Data: Problems

7. Going Forward

3 l

FTA reconfirms Korea’s commitment to market-friendly policy

The Korea-EU FTA Overview

Closer to global standards

Significant progress already made, especially since Asian financial crisis

Ease of remaining operational burden for foreign-owned FIs

Offshore delegation/outsourcing of certain back-office functions

Offshore data processing

4 l

Market Access

Establishment of Local Subsidiaries/Branches

Cross-Border Supply of Services

Positive List

Negative List

Exceptions

Separate licenses required to establish additional bank branches

Interbank brokerage of KRW spot transactions limited to existing firms

New financial services (only in compliance with existing Korean laws)

5 l

Cross-Border Supply of Services

Permissible Cross-Border Services

Within 2 years(2) Financial data processing and related software

O(1) Provision and transfer of financial information

Banking and other Financial Services

O(5) Services auxiliary to Insurance*

Limited to insurances related with (1)~(3)(4) Insurance brokerage/agency

O(3) Reinsurance

O(2) Import/Export Cargo Insurance

O(1) Marine, Aviation, and Space Insurance

Insurance

Cross-Border SupplyService Areas

* Insurance consultation, actuarial services, risk assessment, claim adjustment, etc.

6 l

Scope of Business Delegation/Outsourcing

“The Parties recognize the benefits of allowing a financial service supplier in a Party’s territory to perform certain functions at its head office or affiliates located inside or outside the Party’s territory”

“To the extent practicable, each Party should allow such an office or affiliate to perform these functions……”

Scope of permissible business delegation/outsourcing is unclear

“certain”“to the extent practicable”“should allow”FSC/FSS discretion

Text of the FTA (Annex 7-D)

※Except that host country regulator has discretion to impose certain restrictions

7 l

Scope of Business Delegation/Outsourcing (continued)

Current Regulations

‘Regulations concerning Business Delegation of FIs’ (promulgated by the FSC)

Relevant statutes: ‘FSCMA’, ‘FHCA’, etc.

Non-core businesses such as HR / Accounting / IT

No bright line distinction for functions permitted and non-permitted Regulatory discretion

Prior or post reports to the FSS required

Specific Scope and Procedures for Delegation/Outsourcing

Whether and to what extent, FSC/FSS will change their position on offshore business delegation/outsourcing?

8 l

Offshore Data Processing

Current Practices and Policies

FSS Guidelines (FIs’ Delegation/Outsourcing Handbook, Dec. 2007)

IT facility considered a core function

IT outsourcing not allowed without compelling reason

However, a local subsidiary allowed to temporarily use a part of its offshore IT facility

Regulatory Practices

Offshore IT outsourcing not easily allowed

Onshore IT facility requirement strictly enforced as an important part of the entry requirement

9 l

Offshore Data Processing (continued)

FSC/FSS Concerns

Physical access to offshore data processing facilities

Handling emergency situation

Securing personal information

Obtaining customers’ consent re transfer of personal data

Fairness issue

10 l

Transfer of Personal Data: Problems

Scope of permissible data transfer is unclear

“where such processing is required in the ordinary course of business”“adequate safeguards to the protection of privacy”

No later than two years after the entry into force of this Agreement…,

“Each Party shall permit a financial service supplier of the other Party established in its territory to transfer information in electronic or other form, into and out of its territory, for data processing where such processing is required in the ordinary course of business of such financial service supplier”

“Each Party… … shall adopt adequate safeguards to the protection of privacy, in particular with regard to the transfer of personal data”

Text of the FTA (Article 7.43)

11 l

Transfer of Personal Data: Problems (continued)

Current Legislation: Inconsistencies among different laws

Consent required for providing offshore head offices with financial transaction information

Act on Real Name Financial Transaction and Guarantee of Secrecy

Consent required for outsourcing of ‘processing’

Act on Promotion of Communication Network Utilization and Information Protection Act

Consent not required for outsourcing of ‘data processing’

Personal Information Protection Act (Effective from Sep. 30)

Consent not required for outsourcing ‘information processing’ for ‘contract performance’

Use and Protection of Credit Information Act

12 l

Transfer of Personal Data: Problems (continued)

Future Policy Direction

Will the current consent requirement continue to apply?

The FSC/FSS has 2 years to review and adopt measures on :

protection of sensitive information of consumers

prohibitions on unauthorized reuse of the sensitive information

the ability of financial regulators to have access to records of financial service suppliers relating to the handling of such information

requirements for the location of technology facilities

13 l

Going Forward

Clarification

of Desired

Outcome

Development

of Solutions

Clarify and define “what we want?” (e.g., specific scope of offshore business delegation/outsourcing)

Benchmark EU practices, policies, and regulations

Clarification of Desired Outcome

Development

of Solutions

Develop and provide solutions to deal with

Technical issues

Operational difficulties

Regulatory concerns

14 l