100% Compensation Plan Worked... Financial Supervisory Service Lowers Sanction Level to 'Institutional Warning' for KTB Securities

[Image source=Yonhap News]

[Asia Economy Reporter Ji-hwan Park] The Financial Supervisory Service (FSS) has issued a minor disciplinary action against Korea Investment & Securities, which is accused of incomplete sales related to the P2P (peer-to-peer) lending company ‘Popfunding’ fund. Initially, the FSS had preliminarily notified Korea Investment & Securities of a severe disciplinary action, an ‘institutional warning,’ but it is reported that the full compensation for investment losses in the failed private equity fund and investors’ requests for leniency recently influenced the reduction of the penalty severity.

According to the financial investment industry on the 23rd, the FSS held a disciplinary review committee meeting yesterday regarding Korea Investment & Securities, the securities company that sold the Popfunding fund, and decided on an ‘institutional caution’ sanction. This is a step down from the previously notified ‘institutional warning’ by the FSS. The FSS explained that Korea Investment & Securities violated the suitability principle, explanation confirmation obligation, prohibition of unfair solicitation, and investment advertisement procedures during the sale process of the Popfunding fund. The FSS disciplinary committee recommended imposing fines to the Financial Services Commission and imposed sanctions such as salary reductions on related employees. The final disciplinary level for Korea Investment & Securities will be confirmed through the approval of the FSS governor, deliberation by the Securities and Futures Commission, and resolution by the Financial Services Commission.

Disciplinary actions against financial companies range from ‘registration/license cancellation - business suspension - corrective orders - institutional warning - institutional caution’ in order of decreasing severity. Usually, institutional warnings and above are classified as severe disciplinary actions. Receiving an institutional warning halts mergers and acquisitions (M&A), licensing, and new business initiatives for one year. The reduction in the penalty severity this time is analyzed to have taken into account Korea Investment & Securities’ recent announcement of a 100% compensation plan for failed private equity funds and the victims’ appeals for leniency. On the 16th, Jeong Il-moon, CEO of Korea Investment & Securities, announced a full compensation plan for 10 products including Popfunding, Lime, Optimus, and Discovery.

Investors also responded positively. The Private Equity Fund Fraud Victims Joint Countermeasure Committee submitted a petition to the FSS on the 21st requesting a reduction in the disciplinary severity against Korea Investment & Securities. An industry official said, "The FSS considers measures to recover investor damages as an important factor when deciding the severity of sanctions against financial companies."