Financial Supervisory Service to Actively Oust Unlawful Private Fund Managers; Urges CEOs of Newly Established Firms to Strengthen Internal Controls

[Financial News] The Financial Supervisory Service urged CEOs of newly established private fund management firms to personally review and strengthen their internal controls. It said it would hold firms strictly accountable—including through removal from the market—for unlawful conduct that harms investors or undermines capital-market order.
The Financial Supervisory Service said it held a briefing for CEOs of newly established private fund management firms at its office in Yeouido, Seoul, on the 2nd, together with the Korea Financial Investment Association. About 170 people, including CEOs of newly established private fund management firms, attended the briefing.
The briefing was organized to prevent violations arising from the lack of operational experience and regulatory knowledge among newly established private fund management firms, which operate with small staffs. As of last year, private fund management firms had an average of 14.4 employees. The number of registered private fund management firms increased from 273 at the end of 2021 to 430 at the end of last year.
Seo Jae-wan, an assistant deputy governor at the Financial Supervisory Service, stressed that sound business practices prioritizing investors' interests must be firmly established. He said the repeated occurrence of similar unlawful acts despite continued guidance could only be attributed to a lack of attention from CEOs, who bear ultimate responsibility for internal controls.
Seo urged CEOs to personally review, overhaul, and strengthen their internal controls, noting that their responsibilities had been further reinforced with the implementation of responsibility maps. The Financial Supervisory Service plans to respond firmly to unlawful acts that harm investors or undermine market order and to hold violators strictly accountable, including through active removal from the market.
The Financial Supervisory Service introduced cases in which individuals used nonpublic information obtained in the course of their duties to have family-owned corporations acquire beneficiary certificates, as well as cases in which funds were established and managed at the request of investors or fund distributors. It also presented cases in which firms failed to appoint compliance officers or compliance officers performed core asset-management functions, such as valuing fund assets.
The briefing also covered cases involving employees who violated restrictions on trading financial investment products by trading listed stocks through accounts held in other people's names and failing to report transaction details and the fact that the accounts had been opened.
The Korea Financial Investment Association introduced educational programs for private fund management firms, including a compliance officer training course, advanced courses on internal controls and risk management, practical training for risk management officers, and back-office operations training.
The Financial Supervisory Service plans to continue communicating with the industry through CEO briefings and compliance officer workshops while supporting private fund management firms in expanding investors' access to investment opportunities and supplying productive capital to the market. The Korea Financial Investment Association will also strengthen its educational programs on regulations and internal controls.
[email protected] Lee Jung-hwa Reporter