The Asset-Backed Securities (ABS) Act covers regulations applicable to asset securitization. It describes the recognized forms of securitization vehicles and their scope of business, qualifications of the originator and procedures for the transfer of securitization assets leading to a “true sale”, types of assets that can be securitized, and other special provisions and privileges.

The market for asset-backed securities (ABS) is a key feature of the bond market. The Bank of Korea (BOK) plans to loosen CDO and ABS regulations for more active investor participation. The BOK and the government are currently working to raise the liquidity ceiling and broaden market participant’s qualification criteria to allow smaller financial entities to issue ABS.

The Mortgage-Backed Securitization (MBS) Company Act explains the specific framework for the MBS system. It details the necessary requirements to obtain an MBS company license, criteria for a “true sale”, and special exceptions to the Civil Code that facilitate the transfer of mortgage loans.

Although most securitization deals in Korea are structured pursuant to the ABS Act, the Act does not require all securitization transactions to be subject to this law. However, certain tax exemptions are granted only to securitization structures that comply with the Act.

The Financial Supervisory Service (FSS) also plans to ease rules on ABS to smooth funding flows and to improve market efficiency. The rise in policy rates during 2006 led to a 20% decline in domestic ABS issuance. The FSS is currently studying changes to the following regulations:

• Commercial Act – proposed amendments include the abolition of limits on bond issuance amount;

• Special Act for Registration of Transferred Claims – proposal to ease transfer of claims to the securitizing special purpose vehicle (SPV);

• ABS Act – amendments include easing requirements for permissible assets, obligors and transactions.