This article was published on the ChosunBiz MoneyMove (MM) site at 5:01 p.m. on Dec. 4, 2025.
The Financial Services Commission (FSC) is expected to submit a government bill as early as this year to strengthen regulations on private equity funds (PEFs). Since bills proposed so far by ruling party lawmakers have been criticized as unrealistic, attention is on how much the authorities will reflect market participants' opinions and come up with a compromise.
According to the investment banking (IB) industry, the FSC plans to soon present measures to improve the PEF system and, as a follow-up step, push for a government bill. The government bill is expected as early as the end of this month and at the latest in early next year.
The industry believes the FSC is likely to propose adjusting the borrowing cap for private equity funds. Previously, Rep. Shin Jang-sik of the Rebuilding Korea Party, Rep. Han Chang-min of The Social Democratic Party of Korea, Rep. Jeong Hye-gyeong of The Progressive Party, and Rep. Kim Hyun-jung of the Democratic Party of Korea proposed an amendment to lower the borrowing limit for private equity funds from 400% to 200% of net worth. Under the current Financial Investment Services and Capital Markets Act, private equity fund managers can borrow up to 400% of the fund's own capital.
Until now, the IB industry has voiced concerns about such adjustments to the borrowing cap. If the target company's performance temporarily worsens and its book value falls, the leveraged buyout (LBO) ratio could increase; ignoring this practical issue and forcing a 200% borrowing limit could constrain investment activities.
Industry sources say the FSC might lower the borrowing limit to 200% as in the bills filed earlier, or keep the cap but require reporting to or approval from regulators when the threshold is exceeded. The expectation is that authorities will make a compromise reflecting market concerns to some extent.
There is also analysis that the government bill could include a requirement to report 'related-party transactions' between private equity funds and portfolio companies to regulators.
This aligns with a bill proposed by Rep. Kim Nam-geun of the Democratic Party of Korea. Rep. Kim proposed an amendment requiring private equity funds to thoroughly report to the FSC or the Financial Supervisory Service when they receive dividends from a portfolio company or sell a portfolio company's assets. The bill also included a clause allowing the FSC to order the dissolution of a private equity fund for violations.
There are also more 'radical' bills. In Rep. Han Chang-min's case, he proposed an amendment that would prohibit private equity funds from paying dividends, selling assets or reducing capital for at least two years after acquiring a company. Rep. Shin Jang-sik proposed a bill that would restrict private equity funds' voting rights related to dividends and capital reductions for two years.
The market responded that bills that restrict private equity funds' rights to dividends and capital reductions themselves are not consistent with general legal principles.
A source in the IB industry said, "It is within the Commercial Act's framework for a company's profits to be distributed to shareholders in the form of dividends as part of business judgment and shareholders' meeting decisions," adding, "the entire private equity industry is tense about what kind of compromise the FSC will present considering these points."