Financial Supervisory Service Conducts On-Site Inspection at KB Securities... "Related to Lime Fund Incomplete Sales"

[Asia Economy Reporter Yoo Hyun-seok] The Financial Supervisory Service (FSS) has launched an on-site inspection of KB Securities, which sold the Lime Asset Management private funds that suspended redemptions.

According to the financial investment industry on the 12th, the FSS began an on-site inspection related to the Lime Asset Management fund redemption suspension incident at KB Securities headquarters in Yeouido, Seoul.

The on-site inspection is expected to last about a week, but the period may be extended depending on the progress of the inspection.

This is the third on-site inspection by the FSS on securities firms that sold Lime Asset Management funds, following Shinhan Financial Investment and Daishin Securities, with KB Securities being the third.

The FSS's inspection is expected to focus on whether KB Securities was aware of signs of fund insolvency during the process of providing leverage to Lime Asset Management funds through total return swap (TRS) contracts.

As of the end of last year, KB Securities sold a total of 68.1 billion KRW worth of Lime Asset Management funds that suspended redemptions. This ranks eighth in sales volume among the 19 selling firms.

In particular, some of the Lime Asset Management sub-funds sold by KB Securities were found to have incurred 100% losses. The Lime Asset Management funds that suspended redemptions were operated under a 'parent-child structure,' where the sub-funds' capital is invested in the parent fund, and the loss rate of the sub-funds varies depending on the proportion invested in each parent fund.

KB Securities provided leverage to Lime Asset Management funds through TRS contracts. TRS is a de facto loan where a securities firm purchases assets on behalf of the asset management company in exchange for fees. When the fund matures, the securities firm recovers funds with priority, and investors receive the remaining proceeds.

When asset management companies use TRS, they manage assets larger than the set amount, aiming for higher returns, but if the fund incurs losses, the scale of losses for investors increases accordingly.

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