[Initial Insight] 100% Principal Compensation for Incomplete Fund Sales, and What Comes Next...

Eun Sung-soo, Chairman of the Financial Services Commission, and Jung Il-moon, CEO of Korea Investment & Securities, are attending the major securities firms CEO meeting held at the Korea Financial Investment Association in Yeongdeungpo-gu, Seoul, on the 5th, exchanging greetings before the meeting begins. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Hwang Junho] Korea Investment & Securities' 100% principal compensation plan for the incomplete sale of private equity funds will be completed by the end of this month. While Korea Investment & Securities' compensation process is proceeding smoothly, ripples are still spreading throughout the financial sector.

Since announcing on the 16th that it would provide 100% advance compensation of the full principal amount (158.4 billion KRW) to investors in 10 private equity funds, the banks and securities firms involved in the problematic sales of these funds have been voicing complaints, viewing Korea Investment & Securities as a public adversary.

These criticisms are somewhat understandable. In fact, to determine the responsible party and the scale of compensation, the fault must be identified. It is not possible to simply demand that the seller of the product take responsibility and provide advance compensation. The opinion that Korea Investment & Securities released hundreds of billions of won considering the Financial Supervisory Service's disciplinary review also holds persuasive power. Had the disciplinary review for the incomplete sale of the funds been completed and announced first, there would have been no suspicion regarding Korea Investment & Securities' so-called 'right thinking and right action toward customers,' but Korea Investment & Securities deliberately presented this plan before the disciplinary review. The Financial Supervisory Service actually lowered the level of disciplinary action considering this plan, so shareholders might raise issues of breach of trust, claiming that company funds were used to mitigate disciplinary measures against management.

However, while various defensive arguments toward Korea Investment & Securities have been generated within the financial sector, there has been no news of any securities firm or bank resolving compensation issues.

On the contrary, Korea Investment & Securities' compensation work is entering its final stage. Once compensation is completed, Korea Investment & Securities will leave a milestone as the only securities firm that voluntarily took the initiative in 'financial consumer protection' amid the series of private equity fund crises. It will become a securities firm that personally practices ESG, which has recently become a key topic in the financial sector, benefiting not only shareholders but also stakeholders.

This could also lead to an upgrade in ESG ratings. Unlike the superficial ESG committees or glossy ESG blueprints that have been emerging one after another in the financial sector recently, Korea Investment & Securities has taken concrete measures to build 'consumer trust,' so an upgrade in ESG ratings would be a natural next step. Last year, Korea Financial Governance Service rated Korea Investment & Securities' parent company, Korea Financial Group, with a B grade overall, with a D grade in the environmental category. However, if this year's compensation plan is reflected, the social (S) category score is expected to rise, potentially pushing the rating up to an A grade.

The firm can also shed the stigma of being a 'securities firm with many disputes.' In the first quarter of this year, Korea Investment & Securities ranked second with 135 dispute mediation cases, following Mirae Asset's 137 cases. About 47 of these cases were related to private equity funds. An industry insider commented, "Although the content of each dispute varies, a certain reduction in disputes is expected due to the principal compensation."

Above all, Korea Investment & Securities can be reborn as a 'securities firm where 100% principal compensation can be received if a product has a problem.' Being recognized as a 'trustworthy financial company' by consumers who inevitably lack understanding of financial products is equivalent to securing infinite competitiveness.

This is why Korea Investment & Securities' compensation plan, although unprecedented and subject to various interpretations and issues, remains a valuable choice. The financial sector is approaching a time of decision. It is time to conclude what choices are truly for the consumers. Once trust is cracked, the gap tends to widen over time.

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