Financial Supervisory Service Uncovers 45 Illegal Investment Advisory Firms Engaged in Unlawful Business Practices Last Year

[Asia Economy Reporter Eunmo Koo] The Financial Supervisory Service (FSS) reported that it identified and notified investigative agencies of quasi-investment advisory firms that engaged in illegal and unsound business practices last year.

On the 27th, the FSS announced that it had detected 45 quasi-investment advisory firms conducting illegal business activities last year and reported them to investigative agencies. Previously, the FSS conducted biannual comprehensive inspections and undercover checks targeting firms with frequent complaints, those not inspected for a long time, or newly established quasi-investment advisory firms to verify illegal activities. These inspections checked for unauthorized or unregistered operations, violations of Article 98 of the Capital Markets Act such as money deposits, false or exaggerated profit rate presentations, and breaches of reporting obligations.

The inspection targeted 314 firms, accounting for 17.2% of all quasi-investment advisory firms (1,826 in total), and among them, 45 firms (14.3%) were found to have illegal suspicions. The detection rate slightly increased compared to 2018 (9.9%), with undercover checks?where investigators directly subscribed to paid services to confirm specific allegations?yielding a higher detection rate than blanket inspections of page advertisements or post contents.

The FSS stated that it notified investigative agencies of the firms found to have suspicious activities following the inspections. An FSS official said, “We plan to verify violations through requests for document submissions from suspected firms and implement effective sanctions on those confirmed to have committed violations.”

By type of illegal activity, the most frequently detected violation (48%) was failure to report changes in the name, representative, or location of quasi-investment advisory firms. Additionally, many cases (31%) involved unregistered investment advice or discretionary management provided on a one-on-one basis to clients. Quasi-investment advisory firms are only allowed to provide advice through publications or electronic mailings distributed to unspecified multiple recipients.

The FSS operates a reward system for excellent reports to encourage active reporting by general investors on illegal activities of quasi-investment advisory firms. Twice a year, reports submitted to the Quasi-Investment Advisory Damage Report Center are reviewed, and rewards of up to 2 million KRW per case are given for outstanding reports.

An FSS official stated, “Since consumer damages caused by false or exaggerated advertisements by quasi-investment advisory firms continue to occur, it is necessary to exercise caution when signing up as a member and using investment information to avoid suffering losses.”

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