Financial Supervisory Service to Conduct Focused Inspection on Risk Management Systems of Financial Investment Companies

[Asia Economy Reporter Eunmo Koo] The Financial Supervisory Service (FSS) has selected key inspection items in advance to enable financial investment companies to identify and resolve issues on their own through compliance monitoring and internal audits.

On the 26th, the FSS announced the "2020 Key Inspection Items for Financial Investment Companies." The key inspections review the proactive and systematic response capabilities to the spread of instability in the financial market. For securities firms, the overall risk management status, including liquidity management, will be examined. The risk management status of overseas real estate-related products such as private equity funds and derivative-linked securities (DLS) will be checked, including fund control and securing safety measures, with close monitoring of the entire product resale process. Unhealthy business practices in the manufacturing, sales, and post-management stages of high-risk financial investment products such as private equity funds, equity-linked securities (ELS), and DLS will also be reviewed.

For asset management companies, the appropriateness of internal controls will be assessed through on-site inspections (design), risk assessments (operation), and post-management (redemption) during the investment and operation of overseas investment funds. The risk management status of real estate trust companies and the appropriateness of trust account operations will also be examined.

Chronic or highly likely compliance vulnerability areas will be intensively inspected through continuous monitoring. To this end, comprehensive inspections aligned with incentives will be conducted for securities firms, checking for unhealthy business practices such as conflicts of interest among investors related to discretionary investment and trust property management. Additionally, the appropriateness of dedicated brokerage services (PBS), including total return swap (TRS) transactions with hedge funds, will be reviewed.

For asset management companies, unhealthy business practices such as improper solicitation of private equity fund investments and self or third-party profit-seeking activities will be inspected. The internal control processes for mezzanine investments such as convertible bonds (CB) and bonds with warrants (BW) by asset management companies and fund managers will also be examined.

Investor protection will be strengthened through the restoration of trust in the asset management market. To this end, the FSS will review the appropriateness of fund management by specialized private equity fund managers with weak risk management and strengthen internal control inspections of specialized private equity fund managers.

Considering the novel coronavirus infection, the FSS plans to operate inspection tasks mainly through continuous monitoring and document inspections for the time being, and will promote on-site inspections once the crisis alert level is eased.

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