Hamyongil Deputy Director: "CEO Responsible for Unhealthy Lab and Trust Business Practices... Strict Measures Taken" (Comprehensive)

Report Full of Buying Bias 'Deeply Regrettable'... Research Center Practices Must Improve
FSS Holds Securities CEO Meeting Led by Deputy Governor Ham Yong-il

Ham Yong-il, Deputy Governor of the Financial Supervisory Service (FSS), stated, "Unhealthy business practices related to securities firms' wrap accounts and trusts fall within the 'CEO's area of interest and responsibility,'" adding, "Illegal activities related to customer asset management and operation can no longer be attributed to the deviation of practitioners or inevitable business practices. The supervisory authorities will strictly deal with business practices that presuppose illegal activities."

Deputy Governor Ham attended the "Meeting for Improving Securities Firms' Business Practices" held at the Korea Financial Investment Association in Yeouido, Seoul, on the afternoon of the 5th, where he conveyed requests regarding illegal business practices in the securities industry.

Ham Yong-il, Deputy Governor of the Financial Supervisory Service, attended the "Meeting to Improve Securities Firms' Business Practices" held on the afternoon of the 5th at the Korea Financial Investment Association in Yeouido, Seoul, and conveyed requests regarding illegal business practices in the securities industry. Photo by Financial Supervisory Service

The meeting was attended by representatives from 27 domestic and foreign securities firms, as well as academics, securities industry officials, financial authorities, and independent research stakeholders. The meeting was organized to discuss issues in securities firms' research practices, the management status of customer assets such as specific money trusts and wrap accounts, and improvement measures for illegal business practices.

Deputy Governor Ham said, "The FSS is currently inspecting unhealthy business practices related to wrap accounts and trusts," emphasizing, "The core of this inspection is that some securities firms compensated losses of certain investors at the expense of others during the management of customers' wrap and trust assets." He continued, "If compliance, risk management, and audit departments failed to detect illegal activities, this indicates a company-wide internal control problem," urging, "I ask the CEOs to firmly eradicate unhealthy and illegal practices in asset management markets so that the principle of self-responsibility for financial investment products can be established."

The FSS also pointed out issues regarding the practices of securities firms' research centers. Deputy Governor Ham noted, "Improving securities firms' research reports and business practices related to wrap accounts and trusts has been a long-standing challenge for the securities industry," adding, "Recently, the media pointed out that among eight stocks that experienced sharp price drops related to Contracts for Difference (CFD), only four had research reports, and three of those were all buy recommendations, raising many concerns about the buy-biased research practices of domestic securities firms."

He further stated, "Observing the discussions of the 'Research Practice Improvement Task Force (T/F)' operated with major securities firms since March this year, it is very regrettable that the market environment is blamed without any self-reflection on past practices," and "Moreover, trust in research reports has further deteriorated as cases of analysts abusing research data for unfair gains have occasionally occurred."

He added, "To enhance the independence of research departments, we will promote improvements in analysts' performance evaluations, budget allocations, disclosure methods, and the introduction of an independent research system," emphasizing, "We expect close cooperation between financial authorities and the securities industry so that research reports can become an important infrastructure of the capital market that provides balanced investment directions."

Finally, Deputy Governor Ham said, "The domestic securities industry still tends to focus on short-term performance such as real estate project financing (PF) or continues relationship-oriented sales like wrap accounts and trusts," urging, "Please redesign inappropriate incentive structures that induce wrong practices with a sense of urgency, establish effective internal control systems, and concentrate your capabilities on strengthening the core function of securities firms, which is 'intermediation and supply of funds in the capital market.'"

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