"Regular Inspections Plus Ongoing Spot Checks"
Targeting Online Investment Firms with Numerous Deficiencies and Complaints
Checking Whether Investors Suffered Unfair Losses
Financial authorities have launched unscheduled inspections of some online investment-linked finance companies (OnTu companies). This decision comes from the judgment that financial consumers could suffer unfair damages amid the increase in non-performing loans.
On the 19th, a Financial Supervisory Service (FSS) official stated, “We are conducting unscheduled inspections in addition to regular checks on certain OnTu companies.” It appears that companies with soaring delinquency rates leading to deteriorated asset soundness or those with numerous complaints related to incomplete sales have become inspection targets.
The FSS is scrutinizing the OnTu industry because non-performing loans have surged, raising delinquency rates. According to the office of Assemblyman Oh Ki-hyung (Democratic Party), as of the end of last year, the delinquency rate of 53 OnTu companies was 8.4%, up 3.7 percentage points from 4.7% in the same period the previous year. The delinquency rate for real estate project financing (PF) loans reached 20.1%, and mortgage loan delinquency rates exceeded 10%.
As non-performing loans increased significantly, complaints from financial consumers related to OnTu companies poured in. Unlike other sectors, the business structure of the OnTu industry connects borrowers who need loans with lenders seeking investment opportunities. When loans are delinquent in banks or other financial institutions, the loss is borne by the financial company, but in the OnTu industry, delinquencies lead to investor losses.
According to an OnTu company investment status document provided by investor A, the total invested amount of 20.1 million KRW had an annualized return rate of -14.48%. This was due to the occurrence and sale of non-performing loans in 8 out of 14 linked loan products, including construction funds, real estate collateral, and accounts receivable collateral. In a phone conversation, investor B said, “Due to prolonged high interest rates, delinquencies and maturity extensions have occurred continuously, and about 50 million KRW out of the 100 million KRW invested is tied up in OnTu companies.”
An FSS official said, “We are examining whether financial consumers have suffered unfair damages due to incomplete sales or other issues,” adding, “While the principle of investor self-responsibility must be clear, financial companies must be held accountable if they did not provide sufficient investment information.” The official also noted, “The recent sanction against Honest Fund was intended to sound an alarm so that sound investment practices can be established in the OnTu industry.”
On the 10th, the FSS detected and sanctioned Honest Fund for selling linked loan products without disclosing important investment information. Honest Fund claimed that it had expressed the investment information concisely, but the financial authorities did not accept this explanation. They argued that the obligation to explain was not fulfilled because investors could be misled. The investment amount in the relevant product was about 6 billion KRW, with some non-performing loans occurring.
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