FSS Urges New and Small Private Fund Managers
to Be Cautious of Simple and Repetitive Regulatory Violations
On the 23rd, the Financial Supervisory Service (FSS) provided guidelines to eradicate simple and repetitive regulatory violations by newly established and small-scale private equity management firms, including prohibiting executives and employees from holding concurrent positions at other corporations.
According to the guidelines provided by the FSS, executives of financial companies, including executive officers and those responsible for business execution, are prohibited from engaging in the regular business activities of other for-profit corporations. The FSS also emphasized the need to report to financial authorities when dismissing executives, compliance officers, or those responsible for business execution.
The FSS explained, "There have been continuous detections of violations caused by private equity management firm employees not fully understanding the relevant regulations," adding, "Even minor but repetitive regulatory violations can undermine investor protection and cause moral hazard among market participants."
Additionally, management firms must operate funds according to the collective investment regulations, and assets included in the funds should be fairly valued based on clear grounds, considering the possibility of principal and interest recovery.
For example, Management Firm A was pointed out by the FSS for failing to classify and evaluate clearly unrecoverable included assets as defaulted bonds, and Management Firm B violated investment limits stipulated in the collective investment property regulations.
Furthermore, the FSS advised that when stocks included in a fund are issued by corporations subject to voting rights disclosure, not only the exercise of voting rights but also the non-exercise must be disclosed along with the details and reasons.
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