A decree passed by the South Korean cabinet yesterday (Tuesday) that enforces covered bond legislation in the country caps issuance at 4% of an issuer’s total assets, with the law itself, which was passed in January, having made provision for a limit “within the range of 8%”.

National Assembly, Seoul

The executive body yesterday passed the Enforcement Decree of the Covered Bond Act, which stipulates some details mandated by the Covered Bond Act, according to a spokesperson for the Financial Services Commission (FSC), the financial regulator behind the covered bond law initiative.

The Covered Bond Act was passed by the National Assembly in December 2013 and was promulgated on 14 January, to come into effect next Tuesday (15 April).

The covered bond legislation included a mandate for an enforcement decree to set an issuance cap within the range of 8% of an issuer’s total assets, with 4% the limit set out in the enforcement decree.

Best practice guidelines issued in 2011, ahead of any legislation, included a cap at 4% of total liabilities.

In a press release yesterday the FSC said that the enforcement decree limits covered bond issuers to banks and policy banks “in order to ensure market confidence and investor protection”, and that the FSC is considering allowing a broader range of issuers, depending on market developments.