The 'Lime Responsibility Arrow' Aimed at Financial Authorities

After-the-fact Measures Fall Short
Damage Spreads to Normal Funds as Well

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] The ripple effects are spreading widely as Lime Asset Management's fund redemption suspension has occurred once again. The scale of the redemption suspension funds over three rounds is approaching 1.7 trillion KRW. In this process, calls for accountability regarding financial accidents and the financial authorities overseeing financial companies are growing stronger. Although six months have passed since this incident first surfaced, the financial authorities' response remains a reactive 'too little, too late' approach driven by public pressure.

On the 16th, Lime Asset Management announced, "We informed distributors on the 6th that there is a possibility of additional redemption suspensions in the Lime Credit Insured Trade Finance Fund (mother fund), maturing at the end of March, and 16 sub-funds invested with a total of 294.9 billion KRW." Of the 294.9 billion KRW in the newly decided redemption suspension funds and sub-funds, redemptions amounting to 120 billion KRW linked to assets with liquidity issues are expected to be suspended. With this, combining the first redemption suspension on October 10 last year, the second on October 14, and now the third, the number of mother funds under redemption suspension increases from 3 to 4, and sub-funds from 157 to 173. The scale of redemption suspension funds also rises from 1.5587 trillion KRW to 1.6679 trillion KRW.

The problem is that the funds declared for redemption suspension this time were originally classified as normal funds. It is estimated that since September last year, Lime Management reinvested about 120 billion KRW of these fund assets into other distressed Lime funds facing liquidity crises.

At that time, the Financial Supervisory Service (FSS) was conducting an inspection of Lime Management since August last year but did not prevent this kind of circular investment. If it was an exceptional case for redemption, cross-trading between funds was allowed, and the authorities had no power to block such transactions. This has led to criticism that if the financial authorities had responded more proactively to the Lime incident, the damage spreading even to normal funds could have been prevented.

A source from the financial investment industry said, "Lime funds invested in long-term assets with low liquidity while selling funds with short redemption possibilities or maturities to individuals. Although this method is not illegal, it cannot be considered a normal management practice," adding, "Considering the popularity of the problematic financial products, the FSS's complacent response can be seen as a factor."

Setting aside the delay in the authorities' initial response, the lack of a strong will to resolve the situation afterward is also controversial. So far, they are merely waiting for the external audit results from Samil Accounting Corporation without taking any significant measures. An FSS official said, "There are currently no additional inspection plans for Lime Management," adding, "If necessary, inspections can be conducted, but we are not currently considering that."

Recently, the FSS's poor personnel management has also come to light. The head of the Asset Management Inspection Team 3, who was in charge of the Lime Management case, resigned in December last year and moved to a full-time auditor position at a real estate trust company affiliated with a domestic securities firm. This occurred despite the situation being a matter with expected damages exceeding 1 trillion KRW, where preventing the spread of the incident should have been the top priority. This shows a lack of management over personnel who were most knowledgeable about the case.

Meanwhile, Lime Management is scheduled to receive the final audit report on the redemption suspension funds from Samil Accounting Corporation around mid-February. Afterward, they plan to review the asset recovery schedule within a month and inform customers accordingly. Accordingly, Lime Management is expected to announce the audit results and investment recovery schedule by March at the latest.

This content was produced with the assistance of AI translation services.