Financial Authorities and Related Agencies Launch Comprehensive Private Equity Fund Investigation This Month

[Asia Economy Reporter Kim Hyo-jin] Financial authorities are launching a full-scale investigation into private equity funds. They will also conduct focused inspections on illegal activities by online investment-linked finance businesses (P2P lending) and quasi-financial operators, as well as illegal private financing and voice phishing.

On the 2nd, the Financial Services Commission and the Financial Supervisory Service held a 'Joint Meeting for Comprehensive Inspection of Financial Consumer Damage Focus Areas' at the Government Seoul Office in Jongno-gu, Seoul, with related organizations including the Korea Deposit Insurance Corporation, Korea Securities Finance Corporation, Korea Securities Depository, Korea Federation of Banks, and Korea Financial Investment Association in attendance, and finalized these measures.

The financial authorities will form sector-specific inspection teams and require monthly financial risk inspection meetings to report on the progress of investigations and inspections.

First, the authorities plan to conduct a self-inspection from this month through September by cross-verifying data among sales companies, asset management companies, custodians, and administrative management companies, led by the sales companies. A task force (TF) composed of sales companies, asset management companies, custodians, and administrative management companies will be formed for this purpose.

Additionally, the financial authorities will establish a dedicated private equity fund inspection team (inspection unit) within the Financial Supervisory Service, equivalent to the Asset Management Inspection Bureau, to inspect all private equity fund managers over three years until 2023. The inspection unit will be a temporary organization consisting of about 30 personnel from the Financial Supervisory Service, the Korea Deposit Insurance Corporation, the Korea Securities Depository, and the Korea Securities Finance Corporation.

The authorities plan to complete the formation of the inspection unit by mid-month and immediately begin sequential inspections focusing on asset managers whose basic facts have been identified. If any regulatory violations are found during inspections, measures to prevent investor damage, sanctions against the relevant financial companies, and notifications to the prosecution will follow.

The financial authorities also plan to inspect approximately 240 P2P companies after the P2P Act takes effect on the 27th of next month, centered on the Financial Supervisory Service. They will first collect and analyze audit reports on loan receivables from accounting firms for P2P companies, conduct registration reviews only for qualified companies, and guide unqualified or non-reporting companies to convert to loan businesses or close down.

Inspections will also cover stock leading chat rooms, online private FX margin trading, and Ponzi schemes on quasi-financial platforms that impersonate regulated financial institutions to deceive investors and raise funds. To this end, the financial authorities plan to conduct undercover inspections focusing on the internet and social media and strengthen cooperation with related organizations.

Furthermore, the financial authorities announced plans to swiftly carry out a government-wide crackdown and follow-up measures on illegal private financing and voice phishing in cooperation with the police and special judicial police.

They will conduct mystery shopping investigations by collecting flyers and business card advertisements and focus on cracking down on new methods targeting vulnerable groups, such as durable goods loans, proxy deposits, and gift certificate fraud. Overseas cooperative investigations will also be promoted to root out voice phishing overseas organizations.