1. PensionClear CSD’s New Frontier Dr. Jae-Hoon Yoo Chairman & CEO
Korea Securities Depository

2. Outline 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?

3. Pension replacement rate Public pension spending to GDP
Importance of the Corporate Pension Market in Korea
The 3-layer pension structure to secure old-age income in Korea
But, still low income replacement rate
Old-age
poverty rate
53.1%
12.7%
Pension replacement rate
45.6% (total)
63.6% (public)
Public pension spending to GDP
2.1%
7.8%
Korea
OECD Average
Source : OECD
Corporate pension market
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 total
asset size
Korea corporate pension assets
Enhanced role of corporate pension to ensure massive retirement population
Global corporate pension assets(2013) 01

4. 2. Corporate Pension Reform to Date
The Korean government is making efforts to reform corporate pension
Market Issues
Reform Plan
Unfair product distribution practices
Establish fair business practices
Fair treatment of all products
Prohibit in-house products
Limited selection of products
Biased towards in-house products
Conservative regulation on asset allocation
Rationalize asset allocation rules
Expand limits on risky assets
Encourage conversion to Defined Contribution(DC) plans
Weighted towards safe assets
Mostly Defined Benefit(DB) plans
Mostly bundled contracts
Mandatory unbundled contracts
Mutual checks between service providers
Less pressure on operation risk management
Only contractual-type schemes
Introduction of fund-type schemes
Ensure independence and expertise of management
Conflicts of interest due to agency problem 02

5. Goals PensionClear 3. Development of 「PensionClear」
Support corporate pension reform policies
Enhance competitiveness of market players by improving back-office efficiency
Strengthen investor protection and confidence
PensionClear
Single platform facilitating automatic processing of all back-office operations related to corporate pension (October 2015)
Building on KSD’s existing fund back-office system(FundNet)
Objectives
Service Scope
KSD Platform Model
Before
Bank
Build single platform
Product trading
(Custodian ↔ Product Provider) 1
Securities
Bank
Manage
message standards
Management support
(Asset Manager ↔ Custodian)
Insurance
Insurance 2
After
Bank
Securities
Bank
Integrate
cash settlement
Account transfer
(Asset Manager ↔ Asset Manager) 3
Insurance
Insurance 03

6. Achievements Yearly cost saving* 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)
Achievements
Yearly cost saving*
67 Mil USD
Personnel expense reduction
Operational risk-related cost reduction
Fund report mail expense saving
Deposit fee
reduction
Other expense
High Market Transparency
Enhancing Investors’ reliability
Operational Efficiency through STP
Standardization & Automation
Information Hub as a Market Infra
* Analysis by KPMG Strategic Consulting Group(2013 Dec) 04

7. Main Strategies in Developing 「PensionClear」1
Building on the success of FundNet
Leverage market players’ support and accumulated "Know-how" 2
Adopting single platform approach
Maximize cost savings through economy of scale 3
Customer-oriented approach rather than regulation-based one
Listen to all pension service providers to accommodate customers’ needs 4
Research-based approach
Reference Australia’s SuperStream project and other cases 05

8. Domestic + International
Future of PensionClear
Diversify service coverage into new frontiers in wealth management market such as individual pension, insurance and ISA
Globalize PensionClear & FundNet experience through
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)
PensionClear
FundNet 1
Service expansion
World Class
Financial Platform
Diversification
Capital + Non-Capital 2
Global hub platform
PensionClear
& FundNet
Domestic + International
Globalization 06

9. 4. Is PensionClear Innovation in CSD Business?1
Business in non-capital market segments
Expand CSD business from equities and bonds to savings and insurances 2
Power of platform business model
Exploit business potential leveraging existing diverse CSD platform 3
Customer-based approach without regulations
Elicit voluntary participation from market players instead of relying on
government regulations 4
Seek CSV(Creating Shared Value)
Contribute to capital market efficiency while developing a new revenue base 07

10. Thank You “Progress comes from monopoly, not competition"
- Peter Thiel (PayPal co-founder) in his book ‘ZERO TO ONE’ -
Thank You
Jae-Hoon