The International Swaps and Derivatives Association, Inc (ISDA) today expressed its concern over Korea’s proposed New Product Approval Bill (NPA Bill). The proposed legislation would require certain over-the-counter derivative products to be reviewed and pre-approved by the New Product Approval Committee under the Korea Financial Investment Association (KOFIA), which was formed in February 2009.
“The proposed bill would wrongly place the focus on product approval at the regulatory level, potentially reducing the motivation of buyers and sellers to properly assess suitability,” said Keith Noyes, ISDA regional director, Asia Pacific. “ISDA believes that the Korean market is better served by focusing on and supporting the development of robust new product approval procedures at the firm level. If the bill is passed, it could harm product innovation and be a detriment to Korea’s economy."
ISDA’s concerns with the proposed bill are:
• The proposed bill would misplace focus on to regulatory approval of the product itself, neglecting issues of product appropriateness and suitability;
• Under the proposal, the NPA Committee would be vetting the products in a vacuum without knowledge of the intended investors or the purpose of the product;
• Regulation introduced earlier this year by the Financial Investment Services and Capital Markets Act (FISCMA) makes the NPA proposal redundant;
• Approving the NPA bill could create complacency among both investors and product sellers;
• The unique nature of market timing and risk customization of OTC derivatives could be compromised in the event of a backlog of pending approvals;
• The NPA Committee would be responsible for the final sign-off for any new products and could be exposed to potential litigation risk;
• Inhibiting innovation through new product approval could be detrimental to the Korean economy as a whole.
ISDA has summarized these concerns in detail in a webcast entitled “New Product Approval Bill in Korea: A Misplaced Focus”. The webcast features Noyes and includes a brief slide presentation.
The webcast is available at: https://secure.webex.com/g2.asp?id=1ORDHBVY.
