The Financial Supervisory Service recently ordered domestic securities firms to strengthen risk management, saying concerns in global markets are growing after the Iran situation as the balance of sales of overseas private credit funds to domestic investors increases.
On the 4th, the Financial Supervisory Service (FSS) held a "overseas private credit fund securities firms meeting" at the Korea Financial Investment Association in Yeouido, Seoul. Attending were Deputy Vice Governor General for Consumer Protection Kim Uk-bae of the FSS, Senior Director Im Kwon-sun of the Consumer Damage Prevention Bureau, Director General Park Si-mun of the Capital Markets Supervision Bureau, and executives from 10 domestic securities firms.
Deputy Vice Governor Kim Uk-bae cited information opacity, underestimation of risk, and limits to domestic control as key risk factors of overseas private credit funds.
Kim said, "Strengthen the system for obtaining information on overseas underlying funds and market conditions, and promptly inform investors of the risks obtained," adding, "Check whether product brochures and sales staff explanation scripts contain language that could mislead investors, and thoroughly review sales procedures so that profitability is not emphasized over key risk factors."
Kim also emphasized the need to preemptively prepare for potential risks through analyses of soundness by major industry groups within overseas private credit funds. While reexamining liquidity risk management measures, Kim said it is necessary to advance the risk management framework by preparing a contingency plan in advance and responding accordingly.
Participants agreed on the risks related to overseas private credit funds and said they would expand efforts to protect related investors and also strengthen risk management.
Kim said, "As market uncertainty surges due to global conditions such as the U.S. airstrike on Iran and instability in the overseas private credit market, please work to minimize harm to financial consumers and pay close attention to client management so that misselling of financial investment products does not occur."
The Financial Supervisory Service (FSS) plans to continue monitoring trends in the sale of overseas private credit funds and the thoroughness of fulfilling investor explanation duties, and to inspect and guide financial companies so that their risk management framework operates effectively.