FSS hesitates to punish Tongyang

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FSS hesitates to punish Tongyang

A recent decision by the Financial Supervisory Service to postpone its plan to punish Tongyang Securities for its alleged unfair practices is provoking controversy over its motives.

On Thursday, the FSS held a deliberation committee meeting and decided to indefinitely postpone punishment of the securities subsidiary of the debt-ridden Tongyang Group for having sold investments in an unfair manner last year.

Members of the committee were supposed to discuss and decide the level of disciplinary action to be taken against Tongyang Securities for selling bonds and commercial paper of shaky Tongyang Group affiliates without explaining the high risks to customers.

An inspection of the company sales practices was carried out by the FSS this year.

According to industry sources, the FSS was planning to impose severe disciplinary action on Tongyang Securities by halting part of its operations that would have prohibited the company from selling corporate bonds and commercial paper. The FSS was also planning on taking disciplinary measures on certain executives and employees.

However, on Thursday, it abruptly decided to walk away from the issue at least for the time being.

“We have agreed to decide the level of disciplinary action against Tongyang Securities later once the results of our special inspection come out,” the FSS said in an official statement.

“I’m aware that the committee decided to postpone its disciplinary action based on many opinions that doing so would only provoke emotions of individuals who have already invested in products [offered by Tongyang Securities],” said an official from the FSS.

Some say the reason the FSS doesn’t want to inflame criticism that it should have prevented the alleged malpractices by Tongyang Securities in the first place.

Ever since Tongyang Group, the country’s 38th-largest conglomerate, was engulfed in crisis last month following its failure to pay back maturing debt, the FSS was blamed for not having monitored the group’s securities arm properly. Until last month, Tongyang Group had paid back its maturing debt by selling high-interest corporate bonds and commercial paper to investors and many individuals through Tongyang Securities.

According to FSS data, more than 49,000 individuals invested in Tongyang Group affiliates’ corporate bonds and commercial paper and many of them say they were not told of the high risks involved. Some investors have complained that they simply received calls from Tongyang Securities and were allowed to invest in high-interest bonds without signing documents, which is against the law. But it isn’t the first time that the FSS found that Tongyang Securities had sold products unfairly and violated the law.

Last year, when the regulator conducted its regular inspection on sales practices of the brokerage company in 2011, Tongyang Securities employees were found to have sold 432.9 billion won ($404.3 million) worth of bonds to investors by receiving orders over the phone without contracts being signed from June to November. The FSS gave an institutional warning to the company. This year’s inspection of 2012 sales practices showed Tongyang Securities repeated the same malpractices and the FSS is taking heat for that.

“If the FSS last year took the proper measures to prevent malpractices from recurring, then there would have been many fewer victims of the current crisis,” said a senior official at a local bank.

BY LEE TAE-KYUNG, LEE EUN-JOO [angie@joongang.co.kr]

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