"Repeated Private Equity Fund Scandals Due to Excessive Deregulation... Financial Services Commission Must Be Dissolved"

[Asia Economy Reporter Park Ji-hwan] From last year's Lime Asset Management to the recent Optimus Fund redemption suspension incident, concerns have been raised that the primary responsibility for the series of private equity fund redemption suspension incidents lies with the financial authorities who hastily proceeded with deregulation.

Professor Jeon Seong-in of the Department of Economics at Hongik University pointed out on the morning of the 21st at the 'Discussion on the Direction of Financial Supervisory System Reform Seen from the Private Equity Fund Redemption Suspension Incident,' hosted by Justice Party lawmaker Bae Jin-kyo and Democratic Party lawmaker Min Byung-duk, that "the recent private equity fund crisis originated from excessive deregulation by the financial authorities," adding, "The financial authorities bear great responsibility for focusing solely on market activation without proper preparation for regulatory blind spots."

He noted that from the 2003 credit card crisis, the 2011 savings bank crisis, the 2018 internet-only bank crisis, to the recent private equity fund crisis, there is a high likelihood of financial accidents linked to deregulation by the financial authorities.

According to Professor Jeon, the fundamental cause of the private equity fund incident began with deregulation of the private equity fund market starting during the Park Geun-hye administration. The most decisive moment was the amendment to the Capital Markets Act, proposed by the Financial Services Commission as government legislation in 2014 and passed the following year. At that time, the minimum investment amount for individual investors was lowered from 500 million KRW to 100 million KRW, effectively opening the door wide for individuals to invest in private equity funds.

The minimum capital requirement for asset management companies was also lowered from 6 billion KRW to 2 billion KRW, and further drastically reduced to 1 billion KRW last year. With such a significant lowering of entry barriers, the private equity fund market rapidly expanded from around 170 trillion KRW to 400 trillion KRW after the entry barrier was lowered in 2015.

Professor Jeon pointed out as an urgent task the need to clearly define the conditions for invoking emergency measures under the Financial Investment Services and Capital Markets Act in law. He explained, "The recent private equity fund incident could have been resolved by the Financial Services Commission through the emergency measures under Article 3-35 of the Financial Investment Services and Capital Markets Act, but it was not done," adding, "This is because the current regulations only allow sanctions against management companies, and there is weak legal basis for the financial authorities to take action when fund insolvency occurs." He also suggested that since investors act as monitors in the private equity fund market, general investors who find it difficult to perform monitoring roles should be completely restricted from accessing these funds.

Professor Jeon emphasized that finance should also be prohibited from being used as a policy tool for activating venture industries or curbing real estate speculation.

Above all, he stated that a major revision of the financial supervisory system is necessary to prevent recurrence of private equity fund incidents. He stressed, "The task is to dissolve the Financial Services Commission and establish a financial supervisory organization that has autonomy and independence from political circles," adding, "At the very least, a civil servant organization should not be responsible for supervisory functions."

Professor Ko Dong-won of Sungkyunkwan University School of Law said, "the recent series of private equity fund redemption suspension incidents are cases of supervisory failure arising from problems in the financial supervisory system," pointing out, "if preemptive regulations were relaxed, post-regulations should have been strengthened, but since that was not done, these incidents occurred."

He particularly suggested the need to separate the financial policy function and the financial supervisory function of the Financial Services Commission. He explained that during the promotion of deregulation policies for private equity funds led by the Financial Services Commission, there was no check-and-balance body, which increased the damage.

Professor Ko emphasized, "The separation of financial policy and supervisory functions is an international trend," adding, "the policy function of the Financial Services Commission should be transferred to the Ministry of Economy and Finance, and the supervisory function should be transferred to an independent financial supervisory organization."

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