South Korea’s cabinet approved draft covered bond legislation today (Tuesday), paving the way for the bill to be submitted for parliamentary approval next month and to enter into force six months after its “public announcement”, according to the country’s Financial Services Commission.

South Korea's National Assembly

The bill on the Covered Bond Act was approved at a cabinet meeting today and will be submitted for approval by the National Assembly in February, said the Financial Services Commission (FSC) in a press release.

“The Covered Bond Act will be enforced in six months after its public announcement,” it said.

The regulator introduced the draft law at the end of October and had initially targeted submission for parliamentary approval by December, although presidential elections that month are understood to have affected this timetable.

The Covered Bond Report understands that no changes were made to the draft legislation in connection with the approval by the cabinet. According to the FSC, the proposed law sets out provisions in relation to aspects such as eligibility criteria for issuance, minimum overcollateralisation (more than 105%), and cover pool management. A presidential decree would set an issuance ceiling “within the range” of 8% of an issuer’s total assets at the end of the previous fiscal year. (For previous coverage of the legislation, see here.)

South Korea is the furthest advanced of Asian countries exploring covered bond legislation, with contractual issuance by Korean financial institutions also already having taken place. The Singaporean financial services regulator in March last year proposed covered bond guidelines, a working group in India has recommended a government sponsored covered bond issuance structure, and Japan has also looked into covered bond legislation.