The Securities and Futures Commission to Reconsider Sanctions on NongHyup Bank's 'OEM Fund' Today

[Asia Economy Reporter Kwon Haeyoung] Financial authorities will reconsider on the 20th whether to impose sanctions on NH Nonghyup Bank for selling 'illegal Original Equipment Manufacturer (OEM) funds.' Nonghyup Bank requested a postponement of the Securities and Futures Commission's (SFC) discussion, but the request was denied.

According to sources in the financial sector, the Securities and Futures Commission under the Financial Services Commission plans to review the sanctions against Nonghyup Bank this afternoon. This comes about five months after the decision to impose sanctions was deferred at the end of last year.

Nonghyup Bank is accused of ordering funds from Fine Asia Asset Management and Aram Asset Management between 2016 and 2018 using the OEM method, splitting them into private funds with fewer than 49 investors to evade public fund regulations. The Financial Supervisory Service (FSS) views this as a scheme by Nonghyup Bank to avoid the obligation to submit securities registration statements applicable to public funds and judged that the bank, as the 'arranger' of the funds, has this obligation. Issuing the same securities split into two or more parts is considered a violation of the 'Mirae Asset Prevention Act,' which applies public fund regulations even to private funds. The FSS imposed a fine of 10 billion KRW on Nonghyup Bank, but the final sanction will be confirmed only after the SFC's resolution.

Recently, academia has expressed opinions that sanctioning Nonghyup Bank may be difficult. They argue that the relevant law is unclear and that imposing fines is unreasonable since there were no investor losses.

Professor Kim Yeonmi of Sungkyunkwan University Law School stated at last week's Korean Securities Law Association seminar, "The core of financial market regulation is disclosure regulation, but if the costs exceed the benefits, it may actually block the use of capital markets," adding, "Attention should be paid to the fact that the U.S. Securities and Exchange Commission (SEC) has officially announced a complete revision of securities law regulations." In March, the U.S. SEC revised the trading integration standards of the U.S. securities law, the basis of the Mirae Asset Prevention Act, to protect bona fide market participants (issuers and fund sellers).

Nonghyup Bank argues that applying the Mirae Asset Prevention Act to funds sold before the law's enactment violates the principle of non-retroactivity of laws. The bank also emphasizes that there were no investor losses.

The key issue in today's review of sanctions against Nonghyup Bank is whether the bank will be recognized as an arranger and whether the obligation to submit securities registration statements can be imposed on the arranger. Recently, courts have ruled that arrangers have the obligation to submit securities registration statements. Previously, the SFC imposed fines on the arranger of Bioinfra Life Science's paid-in capital increase for violating the obligation to submit securities registration statements. The arranger filed an administrative lawsuit against this, but the court ruled against the plaintiff.

Meanwhile, if the SFC confirms sanctions against Nonghyup Bank today, it will be the first sanction against sellers in the regulatory blind spot of OEM funds. Other banks and sellers are also closely watching the outcome of the SFC's sanction review.

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