Financial Authorities to Implement Administrative Guidance for Strengthening Private Equity Fund Supervision

[Asia Economy Reporter Eunmo Koo] Financial authorities will proactively implement key tasks of private equity fund (PEF) measures through administrative guidance to restore trust in the private equity fund market. Additionally, they will guide the financial industry on the system, scope, and methods of their own comprehensive inspections of private equity funds to support the effective execution of these inspections.

On the 28th, financial authorities announced plans to proactively implement key tasks for improving the private equity fund system through administrative guidance and to carry out comprehensive inspections systematically and effectively.

First, the financial authorities plan to strengthen the monitoring and control functions of distributors and custodians over asset managers. To this end, distributors will be required to review investment explanatory materials and fund management, and to implement investor protection measures such as suspending sales if redemptions or repayments are delayed. Custodians will also be tasked with monitoring illegal or unfair practices by asset managers.

They will also work to prevent unsound business practices during fund management. This includes prohibiting circular investments among in-house funds and the use of other companies’ funds to evade this, as well as strengthening supervision to ban practices such as “kkyeokgi” and evasion of regulations prohibiting the establishment of single-investor funds.

Support will also be provided for self-conducted comprehensive inspections. These inspections will cover all private equity funds managed as of May 31, requiring sales companies, asset managers, custodians, and administrative management companies to cooperate in verifying the consistency of asset details, the existence of assets, and the alignment between investment explanatory materials, collective investment regulations, and fund management.

Furthermore, detailed matters related to the inspections will be determined through mutual agreement within an inspection consultative body composed of representatives from asset managers, distributors, custodians, and administrative management companies. Participating institutions are expected to actively cooperate by providing materials and complying with decisions made by the consultative body during inspections.

The financial authorities plan to collect opinions on this administrative guidance from the 29th of this month until the 10th of next month, followed by deliberation and resolution by the Financial Regulation Deliberation Committee within the Financial Services Commission. If approved, the measures are tentatively scheduled to be implemented starting from the 12th of next month.

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