[Asia Economy Reporter Ji Yeon-jin] On the 20th, the Financial Supervisory Service (FSS) issued a consumer alert regarding so-called 'fractional investment,' which involves purchasing, storing, managing, and operating high-value assets and distributing the operating profits to investors. This warning came as the FSS concluded that the copyright claims on the music copyright investment platform Musicow are considered 'securities,' thereby violating the Capital Markets Act, raising alarms across the entire fractional investment sector.
The FSS stated, "Fractional investment has the positive aspect of providing investment opportunities in assets that are difficult for individuals to invest in with small amounts or manage. However, there are cases where sufficient information about the operating structure or investment risks is not provided, or misleading information is given to investors. Often, the business operator only promises to operate the assets and distribute profits, but investors do not directly own or exercise rights over the assets, so investors need to exercise special caution."
In fractional investment, information about the operating structure, fees, and investment loss risks may not be sufficiently provided or may be inaccurate, and exaggerated advertising can cause investor misunderstanding.
Additionally, the valuation of investment assets is difficult, and due to low trading volumes, price volatility is high. The FSS warned that most investment target assets such as artworks, antiques, and copyrights are hard to objectively value and have low trading volumes, so fractional investments based on these can experience significant price volatility.
The business operator’s responsible assets may be insufficient, and the operator’s expertise or investor protection mechanisms have not been verified. Moreover, the monitoring system for the secondary market where fractional investment rights are traded among investors is inadequate, exposing it to risks such as price manipulation.
In particular, investors often only receive a promise from the operator to distribute operating profits and do not directly own or exercise rights over the investment assets, so if the operator goes bankrupt or discontinues the service, investors may suffer losses.
An FSS official added, "If the business structure of fractional investment services is judged as securities under the Capital Markets Act, the business operator must comply with the law. Violations may inevitably cause investor damage due to restrictions on existing services."
Earlier, the Securities and Futures Commission of the Financial Supervisory Service decided at a meeting on the same day that Musicow’s copyright claims are securities under the Capital Markets Act. To protect investors, the commission decided to suspend sanctions for six months regarding the failure to submit a securities registration statement (or small-scale public offering disclosure documents).
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