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Based on timely analysis on topics related to current issues that are of importance to economics and finance, our Survey Paper puts forward the implications as well as policy alternatives.

보고서 1
Discussions on Sustainability Disclosure by Collective Investment Vehicles [22-18]
Senior Research Fellow Lee, Inhyung / Oct. 04, 2022
After recognizing greenwashing and investor protection as critical issues, financial authorities of major economies have recently worked on administrative restrictions and legislative bills to meet the related challenges. As part of these efforts, the European Commission adopted the Regulatory Technical Standards (RTS) for implementing the Sustainable Finance Disclosure Regulation (SFDR), while the US Securities and Exchange Commission (SEC) released the regulation mandating ESG disclosure by investment advisers and investment companies.         

A wide range of funds are subject to ESG disclosure. All funds managed within the EU should in principle describe sustainability risks and major adverse impacts in the format and template set forth by the RTS at the level of both GPs and funds. If they fail to do so, the reason for non-compliance should be explained in detail. In the US, a broader definition of ESG funds by the SEC could make most funds subject to the ESG disclosure regulation. Notably, the EU and US have adopted the principle of proportionality in their ESG disclosure rules, meaning that how much impact sustainability factors have on investment decisions determines the level of information to be disclose.    

It might be difficult for Korea to bring its ESG disclosure practices up to the level of the EU’s scheme in a short period of time. Hence, a more practical alternative would be the establishment of guidelines for effectively encouraging ESG-related information disclosure, based on the existing regulatory framework for better investor protection and greater responsibility for asset managers as specified in the Financial Investment Services and Capital Markets Act. But separate guidelines should be devised only if ESG is represented or mentioned in the name and prospectus of funds.

ESG funds should provide a detailed description of the investment type and method and periodically report the process and results of investments. The internal control system is necessary to guarantee the participation of professionals for sustainability analysis and integrity of data being used. Additionally, a due diligence process should be arranged if a fund depends on third-party service providers for data and analysis. ESF funds also need to adopt a benchmark that aligns with sustainability features pursued by them and if they engage in shareholder activities for ESG agendas, they should inform investors of such agenda items and the implementation process and report whether the goal of shareholder activities is achieved on a periodic basis.        
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보고서 1
Entry into the Crypto Assets Business by Global Financial Services Firms [22-17]
Senior Research Fellow Choi, Soon Young / Sep. 13, 2022
Global financial services firms are entering into the crypto assets business on multiple fronts. This stands in contrast to the previously negative stance held by these same firms regarding crypto assets. Part of this shift in attitude comes from regulatory changes enabling entry into the business of crypto assets, but more importantly, it is due to the growing demand for crypto assets investing by the core clients of global financial firms, that is high net worth and institutional investors.

Interest in crypto assets investing especially heightened in 2021 as prices of major crypto assets sky-rocketed. The market capitalization of crypto assets reached 3 trillion dollars in 2021, on par with the global alternative investments market, such as private equity and hedge funds. With growing demand by high net worth and institutional investors, entry into the crypto assets space became a necessity for global financial services firms in order to retain and expand their core client base. Many financial services firms are adding crypto assets as part of their main business, such as wealth management, asset management, trading and custody services. In addition, blockchain technology, which underpins crypto assets, is being adopted more and more by financial services firms to improve the efficiency of their financial infrastructure, such as payment and settlement systems. 

Despite the broad entry into the crypto assets related business by financial services firms, the approach is still quite cautious as uncertainties surrounding the crypto assets market and related regulations are still high. In addition, the ‘crypto winter’, brought on by the Terra-Luna crisis in 2022, is likely to further slow the speed of crypto assets business of global financial firms, but not enough to reverse the momentum that has already been established. In the case of Korea, though a clear regulatory framework for crypto assets is still pending, local financial services firms are showing great interest and already entering into some related areas of business, particularly crypto assets custody services. In addition, Korean financial services firms are actively entering into partnerships and joint ventures with fintechs specializing in crypto assets and blockchain technology. Although the crypto assets market is in the early stages of development, the environment is changing rapidly. Korea’s financial services firms need to closely monitor the market development and develop appropriate business strategies for crypto assets.
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보고서 1
Korea’s Specially Listed Technology Companies: Long-Run Performance and Implications [22-16]
Senior Research Fellow Lee, Seokhoon / Aug. 29, 2022
Recently, a growing number of companies seek to go public through technology special listing in Korea. Emerging as a crucial listing track, it is expected to promote IPOs on the KOSDAQ. On the other hand, some raise concerns about companies listed through the special track which are exempted from financial requirements. Against this backdrop, this article assesses Korea’s technology special listing track by analyzing how those listed companies perform in the stock market and explores challenges for further improving the technology special listing track.

Although companies listed via the special track are subject to different listing requirements and have rarely achieved stable financial performance, the cost of funding through IPOs is pretty much the same between them and other normally listed companies. In terms of long-term stock performance, those companies outperform market indexes or their counterparts under the normal listing track. If the analysis scope is limited to biotech companies, the stock performance of the specially listed ones is hardly different from that of others. They usually begin to perform well in the stock market in the fourth or fifth year after listing, a few of which report outstanding performance that has never been observed in typical IPOs. In addition, there is not much difference in the percentage of stocks falling on the watch list between companies listed via two different tracks. These findings have shown that the special listing track offers opportunities for raising capital through IPOs to technology growth enterprises. It also opens up possibilities of finding companies that deserve to be listed through differentiated requirements. In an analysis of listing requirements’ adequacy, the long-term stock performance of specially listed companies is found not to be adversely affected by relaxed financial qualifications. The result also underscores the need for improving technology assessment capabilities. It is notable that many specially listed companies have failed to enhance financial performance significantly over a long post-IPO period. This implies that their performance in the stock market is highly dependent on technological prowess. Some of the companies may end up with failed technological development, which could aggravate the violation of disclosure requirements or unfair trading practices. In this respect, the financial authorities need to enhance the disclosure system for technological results and monitor closely any violation of disclosure rules or unfair trade practices. If the authorities bolster technical assessment capabilities and take stricter measures for investor protection, technology special listing would be established as the important listing track on the KOSDAQ. 
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보고서 1
Reforming Korea’s Multi-Pillar Pension system for Increasing Income Replacement Rates [22-15]
Senior Research Fellow Song, Hong Sun / Aug. 16, 2022
This article aims to explore the pension scheme reform to achieve a higher income replacement ratio. As Korea’s combined income replacement ratio ranges from 57% (DC plans) to 61% (DB plans), reform for post-retirement income security should be directed toward achieving higher replacement ratios to ensure a post-retirement life with reasonable living standards. However, given the predicted depletion of pension assets, the public pension reform should focus on how to achieve stability of replacement ratios between generations (financial sustainability). Furthermore, it is necessary to overhaul private pension plans that could help raise income replacement ratios by boosting returns without additional premium payment in order to increase the contribution level within the multi-pillar pension scheme. 

Even if the return is maximized through the reform of fund management, the pension fund depletion could be postponed by two to five years at most since the National Pension fund is drying up at a rapid pace. This necessitates an increase in the contribution to achieve financial sustainability. Notably, advanced management of pension assets could reduce the contribution burden significantly, considering that it is expected to generate additional profits that could be translated into 12 to 20 years’ worth of contribution income. In this respect, what is needed is social consensus for raising the contribution level. To this end, how to share the burden of fund deficit should be established and the contribution that the government and the national pension fund could make as trustees through the fund management reform should be reflected in actuarial valuation before the long-term contribution rate is determined. 

If private plans—highly inefficient in asset management, compared to the public pension contributions—are overhauled, it is likely to drive up the income replacement ratio without any additional costs. If Korea enhances its pension scheme to the level of advanced economies by introducing fund-type retirement plans, the replacement ratio could climb by up to 5%p to 11%p, approaching the internationally recommended combined replacement ratio of 66% to 68%. Therefore, further discussions of pension reform should center around a multi-pillar approach encompassing public and private pension plans to devise an optimal policy mix for adequate post-retirement income security and the public pension’s financial sustainability.             
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