The Financial Supervisory Service (FSS) has launched an accounting audit of Korea Investment & Securities, which inflated its sales and expenses by 6 trillion won each in public disclosures. An accounting audit is a process where the FSS examines whether a company has violated accounting standards and the circumstances surrounding this violation, and if the matter is serious, it may be converted into a regulatory inspection. Korea Investment & Securities has stated that the inflated sales and expenses do not impact its net profit, but financial authorities seem to think otherwise.
On the 1st, Ham Yong-il, Deputy Minister of the FSS's Capital Market Sector, held a briefing at the FSS headquarters in Yeouido, Seoul, and noted, "The accounting audit of Korea Investment & Securities has already begun, and we will look into the scale, ratio, and intent behind the violations of accounting rules. The subsequent process will need to be observed further. " If it turns out that the inflation of sales and expenses was intentional to achieve a certain profit, it means that the matter will be converted into a regulatory inspection.
On the 21st of last month, Korea Investment & Securities reissued its business report for 2019 to 2023 after correcting it. This was due to an overstatement of 5.7 trillion won in sales. The year-by-year trends in sales reductions are ▲2019 9.9236 trillion won→9.6820 trillion won ▲2020 15.2 trillion won→14.56 trillion won ▲2021 11.6060 trillion won→12.4305 trillion won ▲2022 20.8065 trillion won→21.6689 trillion won ▲2023 22.0848 trillion won→19.3540 trillion won.
In the process of foreign exchange transactions handled by the retail and FX departments, numbers that should have been offset as internal transactions were not, resulting in inflated sales. In this regard, Korea Investment & Securities maintains that it was merely a simple mistake and that since sales and expenses increased by the same amount, there was no change in net profit.
However, the reaction from the industry has been one of confusion. A source from the financial investment industry remarked, "The relevant department deals only with numbers for their entire career, so the head of the department must have some knowledge of the sales and expenses. "
On that day, the FSS also warned the asset management industry, which continues to compete over exchange-traded fund (ETF) fees.
Ham noted, "It's deeply concerning that large asset management firms, which should be leading the market, are focusing solely on securing market share over operational capabilities and revenue competition, leading to an overheating of the fee reduction competition. " He further stated, "If noise marketing for certain competitive products only for ranking competition continues to occur, we will check the fee determination system for those asset managers and the overall state of understanding between funds and product management. "
This comment targets the top two firms in the industry, Samsung Asset Management and Mirae Asset Global Investments. Recently, Mirae Asset Global Investments has been considering lowering the fees for leverage and inverse ETFs, which are Samsung Asset Management’s core areas, by 1/100. Last month, when Mirae Asset Global Investments lowered the fees for the Standard & Poor's (S&P) 500, Samsung Asset Management followed suit within a day.
Ham stated, "There is absolutely no reason to oppose a general fee reduction that increases investor benefits," and addressed the issue of ranking competition among leading corporations and the viral marketing surrounding it. In this regard, Park Si-mun, director of the FSS’s Asset Management Supervision Bureau, commented, "We are investigating overseas cases and gathering opinions from the industry together with the Financial Services Commission," adding, "(Regulatory improvements) are somewhat advanced. "
Meanwhile, on that day, the FSS refrained from commenting on Acting Prime Minister Han Duck-soo's exercise of veto power regarding the Commercial Code amendment. Previously, Lee Bok-hyun, head of the FSS, stated that such a veto should not be exercised for the advancement of the capital market, indicating his willingness to risk his position.
In response to questions regarding the director’s future, Ham replied, "I have nothing to say about the director's position," and added, "We have sufficiently expressed our stance in favor of the Commercial Code amendment, so I have no specific comments about the subsequent situation. "