The Financial Supervisory Service (FSS) inspected 745 companies involved in similar investment advisory services and identified violations at 112 firms, including unregistered investment advice. Based on the results of this investigation, the FSS has referred 18 companies suspected of criminal offenses for prosecution and plans to take further action, including inspections, against the other companies.
The FSS noted on 8th that "despite the reinforcement of regulations on business activities in August last year, many similar investment advisory firms were found not to comply with these regulations."
The FSS is conducting annual fact-finding inspections in collaboration with the Korea Exchange and the Korea Financial Investment Association to prevent illegal activities by similar investment advisory firms and to protect financial consumers from harm. The similar investment advisory business provides investment judgment and other services related to financial investment products targeting unspecified numbers of investors.
The financial authorities strengthened regulations on similar investment advisory services by amending the Capital Markets Act in August last year. For instance, previously, it was possible to operate in the form of "leading rooms" on platforms like KakaoTalk and Telegram, but due to the amendment of the Capital Markets Act, operations can now only occur on platforms that do not allow for two-way communication. Additionally, advertising practices such as guaranteeing returns or compensating for losses have also been banned.
After strengthening regulations last year, the FSS joined similar investment advisory firms as paid members to conduct undercover inspections. A comprehensive inspection of long-term uninspected firms and advertisements through websites or blogs was also conducted.
As a result, violations were detected in 130 cases among the 112 firms inspected for similar investment advisory services out of 745 companies. In terms of inspection types, violations were confirmed in 9 out of the 45 firms targeted for undercover inspections and 103 out of the 700 firms subjected to comprehensive inspections.
The FSS explained that "compared to 58 firms and 61 cases identified in 2023, last year saw an increase of 54 firms and 69 cases."
By type of violation, non-compliance with requirements accounted for 44.6% of the total. Other violations included failure to report (35.4%) and unregistered investment advisory services (12.3%). Non-compliance with requirements accounted for 58 cases due to not adhering to regulations established last year. Failure to report predominantly involved unreported closures and changes in location. However, unregistered investment advisory services resulted in 16 cases being identified, a decrease of 7 cases compared to the previous year.
Based on the inspection results, the FSS conducted examinations of firms suspected of regulatory violations and imposed fines on 20 companies through the Financial Services Commission. For some violations of newly established regulations, corrections were requested through advisories, and inspections will be conducted for firms that fail to correct their issues after re-inspection.
The FSS stated, "We will continue to inspect the business practices of similar investment advisory firms," adding that "for firms with high concerns about consumer harm, we will take measures such as swift inspections or notifications to law enforcement agencies."