"Illegal Leading Rooms Still Rampant"... Financial Supervisory Service Uncovers 112 Cases

Despite the strengthening of business activity regulations on unregistered investment advisory operators to eradicate illegal “leading rooms,” illegal business practices continue to be rampant.

The Financial Supervisory Service announced on June 8 that, after inspecting 745 unregistered investment advisory operators last year, it detected 130 suspected violations at 112 companies, including unregistered investment advisory activities.

This represents an increase of 54 companies (69 cases) compared to 61 cases at 58 companies in 2023. By type, the most common violation was failure to comply with obligations, accounting for 58 cases (44.6%). This was followed by failure to fulfill reporting obligations with 46 cases (35.4%), unregistered investment advisory business with 16 cases (12.3%), and unregistered discretionary investment business with 3 cases (7.7%).

Failure to comply with obligations is a regulatory item newly established last year. This applies to cases where operators did not comply with requirements such as refraining from providing individualized investment advice or managing funds, indicating the possibility of principal loss and its attribution to investors, and clearly stating in their labeling and advertising that they are unregistered investment advisory operators.

The Financial Supervisory Service plans to conduct inspections on those suspected of violating regulations as a result of the review. Additionally, for some newly established regulations, the agency will urge corrections through legal compliance notices. Companies that fail to make corrections after a re-inspection will also be subject to inspection.

The Financial Supervisory Service stated, "Unregistered investment advisory operators are not institutional financial entities, so it is difficult to protect users. Please exercise caution before entering into contracts." The agency added, "For operators with a high risk of widespread consumer harm or those subject to frequent complaints, we will promptly identify suspected violations through ongoing inspections and take swift actions and measures."