Amid growing calls for management accountability at private equity funds (PEFs) following the recent "Homeplus Co. incident," the Financial Supervisory Service and the PEF Operators Council (hereafter the PEF Council) said on the 9th that they held their first internal control workshop and announced a "standard internal control guideline."
The PEF Council is an organization that PEF operators voluntarily established in 2014 to promote the industry's development and revitalization.
The workshop, held this morning at the Financial Supervisory Service headquarters in Yeouido, Seoul, was arranged to reflect the view that it is necessary to strengthen industry-level self-regulation as the social and economic impact of large PEF operators expands and new operators enter the market. More than 350 PEF industry workers attended, including Vice Governor Seo Jae-wan of the Financial Supervisory Service.
At the event, the Financial Supervisory Service and the PEF Council announced the "standard internal control guideline for institution-only private equity fund general partners (GPs)" to strengthen self-regulation.
Originally, as GPs, which are PEF operators, did not fall under financial companies under the Corporate Governance Act, they were excluded from internal control regulations and there was no standard internal control guideline. The Financial Supervisory Service said the newly announced guideline was established to reflect GPs' inherent risks and organizational characteristics.
The GP standard internal control guideline consists of the GP's internal control organization, standards and procedures that officers and employees must follow in performing their duties, and self-assessments of compliance.
First, the internal control organization defines the authority and responsibilities of the internal control organization, including the CEO and the compliance officer, and has an obligation to establish a system for monitoring and managing compliance with the guideline.
For GP officers and employees, standards to be followed were specified to block information sharing, prevent conflicts of interest, prohibit the giving and receiving of money and valuables, and prevent unfair trading. A management framework was also established for operating a whistleblower system, protecting and rewarding internal reporters, and reporting by officers and employees on their transactions in financial investment products.
At the workshop, the Financial Supervisory Service and the industry shared past inspection cases and best practices and shared the view that it is necessary to strengthen internal controls and ethical management at PEF operators.
PEF Council Chair Park Byung-geon said, "The industry will actively support the financial authorities' pursuit of productive finance through ethical management and by fostering innovative companies," adding, "Active participation by PEF operators and support from the authorities are needed for the council to establish itself as a self-regulatory body."
While saying it would actively support the smooth operation of self-regulation, the Financial Supervisory Service also conveyed its determination to respond sternly to illegal acts in accordance with the law and principles. Vice Governor Seo Jae-wan emphasized, "We must restore market trust that has declined due to unlawful and improper acts by some PEF operators."
Going forward, the Financial Supervisory Service plans to check the actual state of internal control operations and share best practices to guide the sound growth of the PEF industry. In addition, it plans to actively promote on-site communication and institutional improvements so that venture capital such as PEFs can faithfully perform the role of supplying funds to innovative corporations and create a financial ecosystem that enables this.