"9 Securities Firms Under 'Caution and Warning' for Bond-type Wrap and Trust Circular Trading Allegations... Fines Totaling 28.9 Billion Won"

Final Institutional Sanctions Confirmed
at the Third Regular Meeting of the Financial Services Commission

The Financial Services Commission imposed 'institutional warnings' and 'institutional cautions' on nine securities firms involved in so-called 'bond rollover' activities through bond-type wrap accounts and specific money trusts (wrap·trust accounts), and levied fines totaling 28.9 billion KRW.

On the 19th, the Financial Services Commission finalized institutional sanctions at its 3rd regular meeting for nine securities firms: Hana Securities, KB Securities, Korea Investment & Securities, NH Investment & Securities, SK Securities, Kyobo Securities, Eugene Investment & Securities, Mirae Asset Securities, and Yuanta Securities.

SK Securities was decided to receive an 'institutional caution.' The other eight securities firms were issued 'institutional warnings.' However, Kyobo Securities received a one-month partial suspension of business related to new private fund setups. Additionally, a total fine of 28.972 billion KRW was imposed on the nine securities firms.

The Financial Services Commission explained that these sanctions address illegal self-dealing and linked transactions involving bonds and commercial papers (CP), which transferred profits and losses between customer assets or compensated customer losses with the securities firms' proprietary assets. It emphasized that these are serious violations undermining the sound capital market transaction order and the principle of investor self-responsibility.

However, the Commission took into account the special market conditions at the time, such as the credit crunch caused by the Legoland incident in the second half of 2022, the securities industry's contribution to market stabilization and strengthened risk management efforts to prevent recurrence, and the scale of the fines imposed. It also considered proactive post-incident measures such as internal audits conducted in accordance with relevant laws and regulations before the Financial Supervisory Service's inspection, and private settlements with customers who suffered losses.

The Financial Services Commission stated, "This originated from the incorrect practice of selling and managing wrap·trust products, which are performance-based dividend products, as if they were fixed-rate products, guaranteeing principal and returns upon redemption." It emphasized, "To eradicate this, it is necessary not only to establish compliance awareness among related executives and employees but also to strengthen monitoring and checks by management departments such as risk, compliance, and audit."

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