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

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?

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

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

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

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

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

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

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

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