Individual investors' minimum investment in hedge funds will be raised from the current 100 million won to 300 million won.
Eun Sung-soo, chairman of the Financial Services Commission, announced on Nov. 14 a set of measures designed to protect investors in high-risk financial products. The FSC’s move was prompted by the recent derivatives linked securities (DLF) scandal.
“General investors currently need at least 100 million won to invest in a hedge fund, but the amount will be raised to 300 million won,” Eun said.
In 2015, the government lowered the minimum investment from 500 million won to 100 million to promote private equity funds. But it decided to raise the amount in four years as problems arose.
The FSC has also decided to ban banks and insurance companies from selling “high-risk financial investment products,” which refer to financial investment products that contain derivatives that are difficult for investors to understand and that could cause investors to lose up to 20 percent of their principal.
The government will also strengthen penalties for misselling. Financial companies involved in serious misspelling, such as the DLF case, will be subject to punitive fines amounting to 50 percent of their income. It also laid the groundwork for sanctioning executives such as CEOs in case of major accidents. The authorities are planning to actively push for the National Assembly's enactment of the Financial Consumer Protection Act.
Meanwhile, the FSC’s stronger-than-expected investor protection measures raised concerns in the financial industry that they may put a damper on the private equity market and reduce banks’ profits.