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FSS releases details of fund probe

Fast-rising mutual funds will be scrutinized for irresponsible sales tactics

Nov 30,2007
Ahead of next month’s scrutiny of companies selling mutual funds, the top financial watchdog in Korea yesterday announced details about the inspection. The Financial Supervisory Service said it has also come up with measures to prevent irresponsible fund sales.
In a press release, the watchdog said the inspection will focus on whether fund managers made sales after only showing buyers high returns without including warnings about potential losses. It will also look into whether exaggerated financial data was used to sell the funds and whether fund sellers recommended funds that carry higher commission fees more often than those with lower commission fees, the FSS said.
The watchdog announced it would launch an inspection earlier this month, after a fund managed by the nation’s largest fund manager raised red flags due to its fast growth.
The “Insight Fund” by Mirae Asset Investment Management attracted 4.1 trillion won ($4.4 billion) in the three weeks after it went on the market on Oct. 22, spawning speculation that it had been sold irresponsibly.
According to market watchers, the inspection is also due to FSS concerns that the Insight Fund could prove to be a bubble and cause heavy losses to investors. The watchdog has not revealed which companies will be subject to inspection, but said companies with funds that sold a lot in a short period of time will be included.
To prevent irresponsible fund sales, the watchdog said it will strengthen regulations on fund advertisements so fund companies are obliged to include warnings about potential losses in the ads.
“The growth of the fund market has contributed to the advancement of the Korean financial industry,” Jeon Hong-ryul, a deputy governor at the FSS, told reporters. “But concern is rising that its growth is unhealthy because of a no-questions-asked investment style and irresponsible sales by fund managers. That’s why we have come up with comprehensive countermeasures.”
According to the Korea Exchange yesterday, the number of complaints filed by fund investors against fund issuers rose 46.2 percent in the first nine months of this year from last.
“Many investors this year who demanded compensation for losses in fund investments said the fund managers did not warn them about possible losses,” said a Korea Exchange official, on condition of anonymity.


By Moon Gwang-lip Staff Reporter


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