A Shift in PEF Policy
Financial Services Commission (FSC) Chairman Eun Sung-soo has suggested a shift in his stance on private equity funds (PEFs) towards tightening regulations for investor protection.
During a news conference on Oct. 10 held to mark his first month on the job, Eun said he had at first agreed with the commission's policy of easing regulations on PEFs. Yet a recent series of controversies over derivatives-linked funds (DLFs) sold by banks has forced him to change his mind towards toughening the regulations to better protect investors.
"My stance on PEFs has changed. From the standpoint of financial supervisors, it is better that problems have come up before the PEF market grows further," Eun said.
Recently, a chain of PEF-related problems broke out, including banks’ sales of DLF products which caused huge losses to investors and Lime Asset Management Co.’s suspension of redemptions. Investors who purchased DLF and derivatives-linked securities (DLS) products from banks are expected to lose up to 100 percent of their principal. Lime Asset Management also froze more than 600 billion won (US$503.48 million) worth of fund redemptions.
Eun said, “When I first took office, I thought that it was necessary to ease regulations for autonomy of the PEF market and I felt the same even during the parliamentary hearing. However, my stance has changed towards investor protection after a series of problems occurred."
Until now, the Financial Supervisory Service (FSS) received a total of 193 dispute arbitration requests filed by investors in DLF products. The financial regulator is planning to proceed with dispute arbitration if the cases are confirmed to involve mis-selling by banks. In addition, it will come up with comprehensive measures to improve the system across all sectors, ranging from design of financial products to their sales and sanctions against illegal practices, by the end of October and early November at the latest in order to prevent problems from recurring.