Definition of Financial Investment Products from a Legal Perspective

Abstract

The Capital Markets and Financial Investment Services Act introduces a comprehensive definition of financial investment products as a legal basis for a more comprehensive and flexible capital market regulation. Such a comprehensive definition of legal terms does not appear to be general in Korea, which leads to some concerns on the uncertainty involving the interpretation and application of such broad terms. For this reason, the new Act ensures its applicability and legal certainty through three step-definition of financial investment products with their essential functions and risks taken into consideration. Firstly, regarding the definition of financial investment product, the function and risk test is considered relatively clear as there exists a wide consensus on the meaning of function and risk of financial investment products. The new Act also provides for a set of quantitative criteria for which can be used in applying the tests of function and risk. Secondly, with regard to the definition of securities, there may be disputes over the interpretation and application of the resemblance test to some types of investment products involving physical commodities or any interests therein. Thirdly, in the case of derivatives, the main issue is the differentiation of derivatives and insurance products as the new Act expanded the scope of underlying assets very broadly including risks traditionally hedged through insurance products. But the Government announced a plan to introduce a new definition of insurance products. According to the plan, insurance products cover any risk management products if only the insureds or the beneficiaries of the products have material insured interests in the products...이 논문은 서울대학교 법학발전재단 출연 법학연구소 기금의 2008학년도 학술연구 비의 보조를 받았음