"Beware of Principal Loss in New Technology Combination Investments"... Financial Supervisory Service Issues Consumer Alert

[Asia Economy Reporter Park Jihwan] The Financial Supervisory Service (FSS) recently issued a consumer alert and urged investors to exercise caution, noting that while the number of individual investors investing in private new technology business investment associations through securities firms is rapidly increasing, investor protection measures remain insufficient.

According to the FSS on the 15th, the private new technology business investment association market has been rapidly expanding recently. The committed amount, which was around 7.2 trillion KRW at the end of 2018, grew to 10.3 trillion KRW by the end of 2019 and reached 11.7 trillion KRW last year, showing rapid market growth each year. During the same period, the number of associations more than doubled from 459 to 997.

New technology business finance companies were introduced in 1984 through new technology associations to expand private investment and support funding for small and venture businesses. Especially after allowing financial investment firms to concurrently operate new technology business finance companies in 2016, the market experienced rapid growth with a surge in recruiting individual association members through securities firms.

However, the FSS assesses that while investment in new technology associations is similar to private fund investments, the level of investor protection is insufficient, requiring caution when investing. Some securities firms do not adequately explain risks during investment solicitation, citing that private new technology investment solicitation is not subject to the Financial Consumer Protection Act, highlighting ongoing weaknesses in consumer protection measures.

New technology associations primarily invest in unlisted securities of small and venture companies, offering the potential for high returns upon successful investment, but they also carry significant investment risks such as liquidity constraints and principal loss.

The FSS urged investors to analyze their own investment tendencies to determine whether they can properly bear the risks associated with investing in new technology associations and to verify the results. It also emphasized that investors should request sufficient explanations and explanatory materials from the selling securities firms to understand important matters such as investment targets, structure, management entities, fees, and investment risks. When making investment decisions, investors should carefully decide under the 'principle of self-responsibility' based on proper explanations and materials rather than relying solely on securities firm employees.

An FSS official stated, "We plan to recommend that securities firms comply with sales regulations such as the duty to explain as financial product sellers under the Financial Consumer Protection Act when soliciting investments in private new technology associations and establish necessary internal controls."

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