Lee Myung-ho, CEO of Korea Securities Depository, "Is shielding insiders an acquittal for Optimus?... The authorities' judgment"

"Authorities Made Responsible Decisions... Will Not Avoid Accountability"
Private Equity Market Management System to Be Established by June... Expecting Increased Transparency

Lee Myung-ho, President of the Korea Securities Depository, is explaining the management goals at the '2021 New Year Press Conference' held online on the morning of the 8th.

[Asia Economy Reporter Lee Seon-ae] "I do not believe the Financial Services Commission's decision is a carte blanche. The interpretation of laws and systems is not within our domain, and the authorities must have made a responsible judgment."

On the morning of the 8th, Lee Myung-ho, President of the Korea Securities Depository (KSD), made this remark during the '2021 New Year Press Conference' held online, in response to criticism that the Financial Services Commission's interpretation regarding the suspension of redemptions of the Optimus Fund was essentially protecting its own.

The conference focused on KSD's performance last year and its management goals for this year, and during the subsequent Q&A session, questions related to the Optimus Fund redemption suspension surged.

Earlier, the Financial Services Commission issued an interpretation stating, "When a general administrative manager entrusts or performs tasks such as calculating the net asset value of an investment trust, the regulations related to general administrative managers under the Capital Markets and Financial Investment Business Act do not apply," seemingly granting KSD a carte blanche. On the other hand, the Financial Supervisory Service (FSS) has notified KSD of institutional warnings, which are severe disciplinary measures, and salary reductions for related employees ahead of the Optimus disciplinary committee scheduled for the 18th.

When asked about KSD's stance on the Financial Services Commission's interpretation and the FSS's disciplinary proposal, President Lee said, "I believe the Financial Services Commission's interpretation is unrelated to exemption, and while we are not the ones to interpret laws and systems, the authorities must have made a responsible judgment." He added, "However, if there are parts of the work we performed that we must bear responsibility for, our willingness to shoulder that burden without hesitation remains unchanged."

Regarding the level of discipline from the FSS, he was somewhat reserved. President Lee said, "The disciplinary notice from the FSS is also not something for us to comment on," adding, "Our duty is to explain our work and state our position, and it is the supervisory authorities' duty to reflect that and conduct inspections."

He further stated, "We will provide explanations during the disciplinary procedures, and if the outcome is at a level we can accept, we will naturally comply," emphasizing, "Above all, the most important thing is to prevent a recurrence of incidents like the Optimus case and to enhance market transparency."

From April 11, 2016, to May 21 last year, KSD recorded private bonds of unlisted companies such as Rafique, CPNS, and Daebu DK AMC under asset names like Busan Port Authority and Korea Land & Housing Corporation sales receivables on asset statements. They accepted Optimus Asset Management's requests as is, changing the names of private bonds from real estate and lending companies to public institution sales receivables. As a result, KSD has been at the center of responsibility controversies since the early stages of the Optimus Fund redemption suspension incident.

Until now, KSD has consistently stated, "Optimus submitted an investment plan requesting that the asset names be designated as 'public institution sales receivables,' and upon verification, it was explained that the private bonds were effectively secured by public institution sales receivables and had a layered structure, so we entered the information as requested by Optimus." They claimed that as a 'simple calculation administrative agent,' not a general administrative manager under the Capital Markets Act, they had no responsibility for verifying the Optimus Fund. They explained that they had no obligation or authority to compare actual managed assets with the assets used to calculate the net asset value. A general administrative manager handles administrative tasks such as calculating the fund's net asset value or organizing investment details on behalf of the asset management company.

However, some in the financial investment industry and political circles argue that if KSD had conducted even simple verification procedures, the large-scale fraud by Optimus would have been impossible. It is not common to request that private bond subscription contracts be recorded as public institution sales receivables. According to the Financial Investment Association's regulations ('Regulations on the Business and Operations of Financial Investment Companies'), a 'general administrative manager' must reconcile the assets monthly to check for abnormalities and keep supporting documents. The FSS appears to have judged that KSD neglected this responsibility.

Meanwhile, seemingly aware of such controversies, KSD has set enhancing transparency in the private fund market as a management goal for this year. President Lee said, "To improve transparency in the private fund market, we plan to establish a standard code management system for non-marketable assets and a fund asset balance reconciliation support system, scheduled to open in June this year," adding, "After the system opens, we will additionally introduce an operational instruction support service for private fund non-marketable assets and aim to release it in the first half of next year."

This expresses their determination to actively prepare supplementary measures to prevent recurrence as a capital market platform company in relation to the Lime and Optimus Fund redemption suspension incidents.

President Lee explained, "We conducted a full survey of non-marketable assets traded in the private fund market, classified them, and determined how to assign standard codes. The practical and technical aspects were the most difficult and time-consuming," adding, "We have classified a total of 244 non-marketable assets and completed prior consultations with market participants regarding code assignment."

He continued, "It is not just about KSD's system development; the system development of market participants such as asset management companies and securities firms must proceed simultaneously," emphasizing, "Consultations are almost complete, and development work for system integration remains, so there should be no problem opening the system by the end of June this year."

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