The shock from Shinhan Investment Corp.'s 130 billion won operating loss incident had not yet faded when issues of internal controls began to emerge at Shinhan Asset Trust (formerly Asia Trust). This company, which was acquired by former Shinhan Financial Group Chairman Yoo Yong-byeong as a new growth driver in real estate trusts, recently faced reports of illegal activities by employees during a regulatory inspection.
The Financial Supervisory Service announced on the 16th that it confirmed violations of trading restrictions by 13 employees of Shinhan Asset Trust involving financial investment products, imposing fines totaling 115.5 million won. On the same day, Shinhan Asset Trust faced a search warrant from the prosecution over allegations that some employees received money and facilitated loans.
Shinhan Asset Trust is a non-bank affiliate in which former Shinhan Financial Group Chairman Yoo Yong-byeong secured 100% equity. Shinhan Financial Group acquired 60% and 40% stakes in Shinhan Asset Trust in 2019 and 2022, respectively.
Conditions were set to link the selling price to company performance, which resulted in a gradual transfer of equity; however, insiders believe this ultimately exacerbated the company's problems. From the seller's perspective, there was potential to artificially inflate the company's worth to receive a higher selling price.
It is said that there were significant dissenting voices within Shinhan Financial regarding the acquisition of Shinhan Asset Trust at the time of the takeover, as it resembles a real estate development company and there were concerns about potential deficiencies in compliance. However, it is reported that Chairman Yoo strongly pushed for the acquisition.
Shinhan Asset Trust maintained a profit momentum until 2023. However, it recorded an operating loss of 250.4 billion won and a net loss of 308.6 billion won last year, leading to a downturn. Losses from responsible completion guarantees in land trust businesses were the primary cause. In fact, since 2023, potential risks of deficits in entrusted assets began to emerge, and the company failed in its attempts for a rebound without actively setting aside allowances for bad debts.
In this situation, issues with internal controls have also surfaced. The FSS detected that some employees had illegally traded stocks against regulations during its regular inspection of Shinhan Asset Trust in June last year.
According to the Capital Markets Act, employees engaged in financial investment businesses are restricted from trading stocks and investing in financial investment products. To trade financial investment products, they must use only one account that has been reported to the company and must report trading activities to the company every quarter.
However, employees of Shinhan Asset Trust traded stocks secretly. The 13 employees traded stocks amounting to 943 million won from February 2020 to March 2024. The head of a team was confirmed to have opened seven accounts with six securities firms over four years and made investments worth 313.1 million won.
There are claims in the industry that Shinhan Asset Trust has been inadequate in its internal controls over employees. It is reported that some 'troublemaker' employees, who have been with the company since before its acquisition by Shinhan Financial, still remain, and the company is struggling to manage them.
On the day the FSS sanctions were announced, Shinhan Asset Trust also faced a search warrant from the prosecution. Employees are suspected of receiving large sums of money and facilitating loans during trust operations. The FSS confirmed these allegations during its regular inspection and reported the company and related parties to the prosecution.
An FSS official noted, 'Actions concerning the facts confirmed during the inspection are being carried out sequentially,' adding, 'Fines were prioritized due to the statute of limitations, and parts requiring investigation were referred to the prosecution.'
Additionally, Shinhan Asset Trust has been confirmed to have violated the reporting obligations for ancillary services outlined in the Capital Markets Act, leading to anticipated further sanctions. The Capital Markets Act stipulates that financial investment businesses must report to the Financial Services Commission at least two weeks before commencing ancillary services. However, it has been confirmed that the company conducted Asset Management Company (ACM) work for Project Financing Investment Companies (PFV) without prior reporting.
An FSS official stated, 'We intend to follow through with procedures regarding violations of ancillary service reporting obligations, and there are still remaining matters to address regarding sanctions.'