Lee Chan-jin, head of the Financial Supervisory Service, said on the 1st that it is essential to grant the right to initiate investigations to the FSS's special judicial police and noted that some coordination with the Financial Services Commission (FSC) had been reached on the matter. He also said authorizations and sanctions for financial firms' investment management accounts (IMA) and commercial paper issuance businesses should be viewed separately.
At a briefing with the press corps at the Financial Supervisory Service in Yeouido on the morning of the 1st, Lee Chan-jin pointed out the limits of the current system, saying, "In everyday financial supervision in the field, the lack of compulsory investigative authority or the authority to initiate investigations causes supervision to be delayed by more than two weeks."
Earlier, on July 7, the "joint task force to eradicate stock price manipulation," launched in cooperation among the Financial Services Commission (FSC), the Financial Supervisory Service (FSS) and the Korea Exchange (KRX), began operating a one-stop investigation system that allows even search and seizure for alleged market manipulation. But such swift responses are realistically difficult in the FSS's own on-site financial supervision.
The special judicial police system grants limited investigative authority to administrative officials to investigate crimes in specialized fields. Proactive investigations are not allowed, and they can only investigate under a prosecutor's direction.
Lee said these restrictions undermine the effectiveness of investigations. "As investigations are delayed, evidence is destroyed along the way and necessary investigative steps are missed, so I merely pointed that out and expect improvements," Lee said.
Lee also stressed that the special judicial police for people's livelihood crimes, which the FSS is currently pushing to introduce, needs compulsory investigative powers, including the right to initiate investigations. "In the same vein, the (livelihood-crime special judicial police) must act quickly in real time, and if it cannot be activated properly due to institutional constraints, the public will be very disappointed," Lee said, adding, "Within the Financial Services Commission (FSC), there is no disagreement on introducing the livelihood (special judicial police), and I understand that some adjustments have been made regarding the capital markets."
Regarding delays in reviews of related securities firms due to internal control issues as approvals for IMA and commercial paper issuance businesses proceed, Lee said, "Sanctions should be strict, while permits and approvals can be approached differently from a policy perspective."
After Kiwoom Securities received approval for a commercial paper issuance business last month, four firms—Meritz Securities, Samsung Securities, Shinhan Investment, and Hana Securities—are currently undergoing approval reviews for commercial paper issuance.
However, during Samsung Securities' inspections of key branches, internal control issues at some outlets were found, prompting the Financial Supervisory Service (FSS) to begin a sanctions review, and Meritz Securities is under a prosecution investigation over alleged unfair trading involving Ehwa Technologies Information's bonds with warrants (BW) in the past. NH Investment & Securities, which is undergoing IMA review, faces allegations of using undisclosed information. The remarks are seen as being made with these circumstances in mind.
In addition, after taking part in the second meeting of the "four-party consultative body on exchange rate response" on Nov. 30, the Financial Supervisory Service (FSS) said it will conduct inspections of consumer protection practices related to overseas investments. Through January next year, it plans to focus on the adequacy of investor explanations when selling overseas investment products to securities firms and others.
Lee explained, "We are checking overall business practices, such as whether financial firms are fully explaining the risks when investors' transactions such as margin trading are exposed to foreign exchange risk, and what the practical business practices are."
Finally, regarding stewardship code (guidelines for institutional investors) implementation, Lee said, "The government aims to shift liquidity concentrated in real estate into productive finance, and for that, it is important that the corporations worth investing in remain transparent."
He added, "If the financial authorities can collaborate with another major player, the pension fund, on matters related to ESG (environment, social and governance), I believe it can have a positive impact, which is why I expressed expectations."