Securities Firms Sanctioned for Speeding Up Private Equity Fund Sales

[Asia Economy Reporter Park Jihwan] The financial authorities are accelerating disciplinary procedures against securities firms that sold private equity funds such as Lime Asset Management and Optimus Asset Management.

According to the financial investment industry on the 8th, at 2 p.m. on the same day, the Financial Services Commission will hold a Securities and Futures Commission meeting to review the proposal to impose fines on securities firms that sold Lime funds, including Shinhan Financial Investment, KB Securities, and Daishin Securities. This agenda was discussed at the second regular meeting on the 20th of last month but no final conclusion was reached.

The disciplinary review process under the Capital Markets Act is decided in three stages: first the Financial Supervisory Service (FSS) disciplinary committee, then the Financial Services Commission’s Securities and Futures Commission, and finally the Financial Services Commission itself. Previously, in November last year, the FSS disciplinary committee imposed suspension of duties on former CEOs Kim Hyung-jin of Shinhan Financial Investment, Yoon Kyung-eun of KB Securities, and Na Jae-cheol of Daishin Securities (currently chairman of the Korea Financial Investment Association), and issued a reprimand to Park Jeong-rim, CEO of KB Securities. The FSS also imposed partial business suspension on KB Securities and Shinhan Financial Investment, and ordered the closure of the Banpo WM Center for Daishin Securities.

If the fine proposal is approved at the Securities and Futures Commission meeting on this day, the disciplinary procedures against the related securities firms are expected to become more active. The most anticipated issue, the disciplinary proposal for the CEOs of the securities firms, is scheduled to be discussed at the regular Financial Services Commission meeting at the end of this month or early next month. The Securities and Futures Commission reviews fines and penalties, while business suspensions of institutions or disciplinary actions against executives such as CEOs are reviewed and decided by the Financial Services Commission.

In past FSS disciplinary committees, the key issue was whether CEOs of financial companies could be severely disciplined for poor internal controls. The FSS cited the Financial Company Governance Act, which requires financial companies to establish internal control standards, and its enforcement decree, which mandates effective internal control standards, holding current and former CEOs of the selling securities firms responsible. On the other hand, the industry argued that punishing CEOs as actors for failing to properly establish and manage internal control standards was an excessive sanction. The securities firms subject to discipline plan to focus on demonstrating efforts to prepare pre-compensation plans and prevent consumer damage.

Following the Lime incident, the financial authorities are also intensifying disciplinary procedures against sellers and custodians involved in the Optimus fund incident. The FSS plans to hold a disciplinary committee on the 18th of this month targeting major sellers and custodians of the Optimus fund, including NH Investment & Securities, the Korea Securities Depository, and NH Investment & Securities President Jung Young-chae, the largest seller. The industry expects severe disciplinary actions against them as well, based on precedents such as the Lime incident disciplinary proposals.

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