Dr. Jae-Hoon YooChairman & CEO

Korea Securities Depository

PensionClearCSD’s New Frontier

1. Importance of the Corporate Pension Market in

Korea

2. Corporate Pension Reform To Date

3. Development of 「 PensionClear 」

4. Is PensionClear Innovation in CSD Business?

Outline

The 3-layer pension structure to secure old-age income in KoreaBut, still low income replacement rate

Korea

OECD Average Source : OECD

Old-agepoverty rate

53.1%

12.7%

2.1%

7.8%

45.6% (total)

63.6% (pub-lic)

Pension replacement

ratePublic pension

spending to GDP

Enhanced role of corporate pen-sion to ensure massive retire-ment population

Short history of less than 10 years

Low coverage rate of both workplaces (16.3%)and workers (51.6%)

Rapid growth of 22%, but still small in to-talasset size

01

Corporate pension market

Korea corporate pension assets

Global corporate pension assets(2013)

1. Importance of the Corporate Pension Market in Korea

2. Corporate Pension Reform to Date

Reform Plan

The Korean government is making efforts to reform corporate pension

02

Market Issues

Unfair product distribution practices Limited selection of productsBiased towards in-house products

Conservative regulation on asset allocation

Mostly bundled contracts

Only contractual-type schemes

Establish fair business practicesFair treatment of all productsProhibit in-house products

Rationalize asset allocation rulesExpand limits on risky assetsEncourage conversion to Defined Contribution(DC)

plansMandatory unbundled contractsMutual checks between service

providersIntroduction of fund-type schemes

Ensure independence and expertise of management

Less pressure on operation risk manage-ment

Conflicts of interest due to agency problem

Weighted towards safe assetsMostly Defined Benefit(DB) plans

3. Development of 「 PensionClear 」

Single platform facilitating automatic processing of all back-office opera-tions related to corporate pension (October 2015)

03

PensionClear

Support corporate pension reform policies

Enhance competitiveness of market players by improving back-office ef-

ficiency

Strengthen investor protection and confidence

Goals

Building on KSD’s existing fund back-office system(FundNet)

Objectives Service Scope KSD Platform ModelBefore

After

Build single plat-form

Managemessage stan-

dards

Integrate cash settlement

BankBank

Insurance

Securities

Insurance

BankBank

Insurance

Securities

Insurance

Product trading (Custodian ↔ Product Provider)

1

Management support(Asset Manager ↔ Custodian)

2

Account transfer (Asset Manager ↔ Asset Manager)

3

04

What is FundNet?

A STP (Straight Through Processing) platform for fund service processing

An information hub in Korea’s fund market

An industrial communication network (348 participants)

High Market Transparency Enhancing Investors’ reliability

Operational Efficiency through STP Standardization & Automation

Information Hub as a Market Infra

Achieve-ments

Yearly cost saving*

19.8

9.83.25

30

67 Mil USD

Personnel expense reductionOperational risk-related

cost reduction

Fund report mail expense saving

Deposit fee reduction

Other expense

* Analysis by KPMG Strategic Consulting Group(2013 Dec)

05

Building on the success of FundNet Leverage market players’ support and accumulated "Know-how"

Adopting single platform approach Maximize cost savings through economy of scale

Customer-oriented approach rather than regulation-based one Listen to all pension service providers to accommodate customers’ needs

Research-based approach Reference Australia’s SuperStream project and other cases

1

2

3

4

Main Strategies in Developing 「 PensionClear 」

Diversify service coverage into new frontiers in wealth manage-ment market such as individual pension, insurance and ISA

Globalize PensionClear & FundNet experience through

06

PensionClear & FundNet

World ClassFinancial Plat-

form

Domestic + InternationalGlobalization

Div

ers

ificati

on

Cap

ital +

Non

-Cap

ital

Service expansion

Global hub platform

1

2

PensionClear FundNet

Sharing FundNet know-how with fellow CSDs in the world Contributing to “Back-office Standardization” of fund processing in Asia : AFSF(Asia Fund Standardization Forum)

Future of PensionClear

4. Is PensionClear Innovation in CSD Business?

Seek CSV(Creating Shared Value)

07

Contribute to capital market efficiency while developing a new rev-enue base

Business in non-capital market segments

Expand CSD business from equities and bonds to savings and insurances

Power of platform business model

Exploit business potential leveraging existing diverse CSD platform

Customer-based approach without regulations

Elicit voluntary participation from market players instead of relying on

government regulations

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Jae-Hoon YOO(ceo@ksd.or.kr)

Thank You

“Progress comes from monopoly, not

competition"- Peter Thiel (PayPal co-founder) in his book ‘ZERO TO ONE’ -