Financial Supervisory Service Warns "Certain Money Trusts Do Not Guarantee Principal, Caution Advised"

[Asia Economy Reporter Song Hwajeong] # Mr. A, in his 60s, visited his usual bank to invest his retirement funds in a stable product. After hearing from a bank employee that the product had a high interest rate, no risk of principal loss, and no issues with maturity payments, he invested 300 million KRW, including his severance pay, in a specific money trust investing in overseas corporate bonds. Later, when the related company went bankrupt and he could not recover his investment, Mr. A filed a complaint.

Recently, as the trust assets of banks' specific money trusts have increased, disputes and complaints related to principal losses have also been steadily rising.

According to the Financial Supervisory Service (FSS) on the 23rd, the trust assets of banks' specific money trusts increased from 170.2 trillion KRW at the end of 2016 to 221.4 trillion KRW at the end of 2018, and to 278.5 trillion KRW at the end of last year.

A specific money trust is a product where a customer entrusts money to a financial company and designates investment in a specific product, and the financial company manages the funds accordingly and distributes the profits.

Dispute mediation complaints are continuously raised, claiming incomplete sales by banks, as customers who joined specific money trusts believing they were safe based on bank employees' explanations suffered significant principal losses. In response, the FSS has provided guidance on precautions consumers should take when subscribing to specific money trusts to prevent financial consumer damage in advance.

First, even if you subscribe to a specific money trust at a bank, you should keep in mind that the principal is not guaranteed unconditionally. Even when subscribing through a bank, which is perceived as relatively safe, principal protection is not guaranteed. In particular, specific money trusts that include derivative products such as equity-linked securities (ELS) linked to stock indices are high-risk products and should be treated with caution.

Additionally, specific money trusts are not covered by deposit insurance. While deposits such as fixed deposits at banks are protected up to 50 million KRW, specific money trusts are excluded from deposit insurance coverage, so this should be noted when subscribing.

When subscribing to a product, carefully review the investment product’s risk level, maturity, and early redemption (cancellation) conditions. The investment risk varies depending on the types of incorporated products and management methods of specific money trusts, and maturity and early redemption (cancellation) conditions also differ. Furthermore, in unstable financial market conditions, unexpected losses or delays in recovering investments may occur.

Moreover, do not rely solely on the salesperson’s explanation; thoroughly understand the investment risks through product brochures and other materials before signing subscription documents. When subscribing to foreign currency deposits through specific money trusts, clearly confirm whether there is any hedging against exchange rate fluctuation risks.

An FSS official stated, "Even if customers claim incomplete sales by banks, if it is confirmed that the investor 'was explained and understood the product' at the time of subscription and gave the same answers during the happy call, it is difficult to judge incomplete sales unless there is evidence proving problems in the sales process. Therefore, caution is required when subscribing."

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