S. Korean Agencies to Probe All Private Fund Operators
Source: Regulation Asia Manesh Samtani, Regulation Asia
A new inter-agency team, led by the FSS, will be established by mid-July, and refer any illegalities detected to authorities for ‘swift action’ including prosection.South Korea’s FSC (Financial Services Commission), FSS (Financial Supervisory Service), KSD (Korea Securities Depository) and KDIC (Korea Deposit Insurance Corporation) have agreed to establish a dedicated team to inspect all private fund operators in the country over the next three years.The decision was adopted on Thursday (2 July) at a meeting to discuss measures to address a recent series of asset freezes at private funds, including Lime Asset Management, Optimus Asset Management and Discovery Asset Management.The agencies have decided to carry out a large-scale probe into private funds, which will include self-inspections by sellers and operators of a total 10,304 such funds in the country – to be carried out between July and September this year. Any irregularities detection during the self-inspections shall be reported to the FSS immediately.Separate site inspections on all 233 of Korea’s private fund operators will also be carried out over the next three years by a new FSS-led inspection team, to be established by mid-July. “If any illegalities are detected, the financial authorities will take swift actions such as remedies for investors, sanctions against financial institutions and referral to prosecutors,” the FSC said.FSC Chairman Eun Sung-soo first announced plans to initiate an industry-wide probe covering all private fund operators nearly two weeks ago, in response to allegations of fraud at Optimus Asset Management. In its Thursday notice, the FSC also said it would target other “fraud-prone areas” – including P2P lending, illegal fundraising schemes, and predatory lending.Meanwhile, banks and brokerages are said to be pushing back against an FSS decision to recommend that ten sellers of suspended Lime Asset Management funds fully compensate investors for their principal – representing a total KRW 161.1 billion to pay 500 retail investors and 58 corporate investors.“Banks and brokerages involved in misselling the funds drew investors’ money without deliberating on ill-advised investment proposals by the fund manager,” said FSS Deputy Governor Jung Sung-woong. “We acknowledge that individual investors could not be to blame for (violating) the individual’s principles for responsible investing.”The recommendation, selected by the FSS’ Financial Disputes Settlement Committee from among four arbitration proposals, would be subject to a court’s ruling.Redemption suspensions at Lime Asset funds first occured in October. Lime Asset fund sellers including Woori Bank, Hana Bank, Shinhan Financial Investment, Mirae Asset Daewoo and Shinyoung Securities are accused of pooling money in feeder funds that went to Lime’s master fund disguised as trade finance investments.Lime Asset invested some of these funds in illiquid structured funds operated US investment adviser IIG (International Investment Group), which later lost its licence on charges of selling fake loan assets. Lime was accused of concealing the losses from investors.Last month, Woori and Shinhan agreed to pay about 50 percent of the principal invested in three suspended funds. Separately, banks and brokers agreed to establish a new entity to manage the funds with an aim to recovering assets and compensating investors.
Subscribe Now
