On-to-Company Earnest Fund Criticized for Missing Investment Information

Financial Supervisory Service Imposes Fines and Penalties
Sold 6 Billion KRW Without Key Investment Information
Poor Document Records... "Improvement in Document Management Required"

Online investment-linked finance business (On-tu-eop) operator Honest Fund was found to have sold linked loan products without disclosing key investment information. Additionally, the method of recording and managing documents related to linked loan products was criticized as inadequate.

According to the Financial Supervisory Service (FSS) on the 11th, the Digital Innovation Bureau detected these regulatory violations by Honest Fund during an inspection. Based on the inspection results, the FSS imposed a fine of 25 million KRW and a penalty of 18 million KRW on Honest Fund. Furthermore, one related employee received a cautionary warning, and another was notified of a sanction at the cautionary warning level for ‘illegal acts by a retired employee.’

The FSS judged that Honest Fund advertised and sold the linked investment product ‘Large Corporation Duty-Free Shop Sales Receivables’ while omitting important investment information during the sales period. This product was sold 20 times from July 5, 2022, to December 14 of the same year. The total number of investors was 4,276, and the investment amount was approximately 6 billion KRW.

At that time, Honest Fund explained the product not only in the product description but also through KakaoTalk advertisements and online platforms, stating that “two borrowing companies directly signed customer solicitation consignment contracts with large corporation duty-free shops.” The structure was such that when the borrowing companies introduced overseas wholesale and retail buyers to the large duty-free shops, they received commissions from the duty-free shops as compensation and repaid the loan.

However, the FSS inspection revealed that the two borrowing companies did not directly introduce overseas buyers to the large corporation duty-free shops. Instead, the borrowing companies used a total of four subordinate partner companies to solicit overseas buyers and connect them with the duty-free shops. When the duty-free shops paid commissions, a portion was first deducted as consignment fees to the partner companies, and the remaining amount was used to repay the loan.

Seoul Yeouido Financial Supervisory Service building. Photo by Younghan Heo younghan@

Under the current On-tu-eop Act, On-tu-eop operators are prohibited from advertising linked investment products by reducing information. According to Articles 4 and 19(1) of the On-tu-eop Act, operators must not advertise linked investment products by concealing or reducing facts and have an obligation to provide sufficient information about the product’s content and risks. Additionally, Articles 4 and 22(1) of the On-tu-eop Act require operators to explain the risks of linked investments to investors in an easily understandable manner through online platforms. At this time, information that could significantly affect reasonable investment decisions or the value of the product must be provided without omission, distortion, or falsehood.

Moreover, Honest Fund did not document the review of legal compliance during the development and promotion process of linked loan products, including the large corporation duty-free shop sales receivables. Accordingly, the FSS pointed out that the document processing and storage methods were inadequate and that there were no document management regulations, demanding that Honest Fund improve its management of key documents. Currently, Honest Fund has a total of 36 internal regulations related to documents, including board of directors’ regulations.