Financial Supervisory Service Decides 40~80% Compensation for Discovery Fund Investment Losses

Compensation Ratios for Two Investors Decided at 64% and 60% Respectively

[Asia Economy Reporter Park Sun-mi] A decision has been made that Industrial Bank of Korea (IBK) must compensate investment losses at a rate of 40-80% related to the Discovery Fund it sold.

On the 25th, the Financial Supervisory Service held a subcommittee meeting regarding IBK’s Discovery Fund and decided on post-settlement compensation for the US Fintech Global Bond Fund (hereinafter Global Bond Fund) and the US Fintech Real Estate Secured Debt Fund (Real Estate Secured Debt Fund).

The subcommittee applied a basic compensation ratio of 50% (Global Bond Fund) and 45% (Real Estate Secured Debt Fund) for IBK’s liability for damages due to incomplete sales of the Discovery Fund, deciding compensation ratios of 64% and 60% respectively for two investors.

A small business that subscribed to the Global Bond Fund was ordered compensation at 64% of the loss amount. The sales staff arbitrarily recorded the company’s investment propensity as ‘aggressive investment type,’ and after completing the subscription process, upon discovering some handwritten information by the applicant was missing, they filled it in arbitrarily. In a case where an investor who visited the branch upon maturity of a low-risk bond-type product (grade 4) was recommended by staff to invest in a high-risk product (grade 1) without explanation of the risks involved, a 60% compensation decision was made.

Both cases referred to the subcommittee recognized IBK’s liability for damages. The subcommittee first judged that IBK’s sales staff did not confirm the investor’s propensity beforehand and wrote it inaccurately as ‘aggressive investment type’ after the fund subscription was decided (violation of suitability principle). It also found that while emphasizing the product as a safe investment in US bonds, there was a failure to explain related risk factors and the possibility of principal loss (violation of duty to explain). In particular, it judged that the responsibility was significant due to poor product selection and sales processes, as well as inadequate internal controls related to the joint sales system, which caused many high-value victims.

The compensation ratio applied 30% for the sales staff’s violation of suitability principle and duty to explain, consistent with previous dispute mediation cases, and added 20% for the Global Bond Fund and 15% for the Real Estate Secured Debt Fund considering the head office’s internal control deficiencies. Furthermore, the final compensation ratio was calculated by adjusting for aggravating factors on the seller’s side and self-responsibility factors on the investor’s side for each investor.

The subcommittee announced plans to promptly carry out voluntary adjustments for other investment victims at compensation rates of 40-80% according to this subcommittee’s compensation standards.

If the parties accept the mediation proposal within 20 days of receipt, the mediation is established. For the remaining subjects of mediation, it plans to handle them through voluntary adjustments or other methods based on the subcommittee’s compensation standards. If the mediation process proceeds smoothly, relief for the unresolved 76.1 billion KRW (269 accounts) due to redemption delays will be concluded.

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