The Financial Supervisory Service imposed more than 100 million won in fines on Daol Investment & Securities. It said the firm had urged retail investors to buy high-risk debt securities.
According to the financial sector on the 3rd, the Financial Supervisory Service (FSS) recently imposed 140 million won in fines on Daol Investment & Securities.
According to the FSS's inspection results, Daol Investment & Securities set up a special purpose company (SPC) to securitize loan claims for business sites in which it participated as a subordinated senior lender. The SPC then issued unrated private bonds backed by the loan claims, and Daol Investment & Securities sought to sell them to retail investors.
The FSS concluded that, in effect, Daol Investment & Securities shifted the non-repayment risk of its project financing (PF) subordinated loan claims to retail investors.
This violates the Financial Investment Services and Capital Markets Act and financial investment business regulations. Financial investment businesses are prohibited from soliciting retail investors to trade high-risk debt securities.
Accordingly, the FSS imposed fines on Daol Investment & Securities and issued sanctions, including cautions and reprimands, to employees involved in the case.
Among securities issued by oneself or an affiliate, if there is a condition that, in the event the issuer goes bankrupt, other debt is repaid first and debt is repaid only from any remaining assets; or if they fall short of investment grade; or if they do not receive a credit rating—such as bonds, asset-backed securities, and commercial paper—these qualify as high-risk debt securities and therefore must not be solicited for sale.