Messaging-service stock advisors to be tightly regulated
Paid stock advisors offering recommendations via messaging services will be subject to new rules from July.
According to the Financial Services Commission (FSC), advisors who offer paid stock advice in so-called stock leading rooms – private chat rooms said to be run by stock analysts – will need to register as quasi-investment advisors with the FSC.
A quasi-investment advisor is a person who engages in the business of providing advice on investments in financial instruments or the value of financial instruments.
Those who fail to do so will be subject to a fine of 30 million won ($26,716) or a prison term of up to one year.
Financial authorities plan to include such rules in the amendment to the Financial Investment Services and Capital Markets Act, which will be proposed in the second quarter of this year.
Those registered as quasi-investment advisors will be prohibited from doing one-on-one consultations online, including any investment related Q&As and discussions on platforms such as KakaoTalk. Using platforms that enable two-way communication - even if one-on-one consultation was not given - will be illegal.
The rules follow a recent surge in damage claims by those who lost money following advisors on KakaoTalk or YouTube. In the past, many have paid large sums for tempting strategies, exclusive stock trading information or guaranteed high returns.
A total of 1,744 claims for damages were filed with the Financial Supervisory Service (FSS) last year regarding the schemes, a notable increase from 1,138 in 2019 and 905 in 2018. Some 663 complaints are already filed as of March this year.
Advisors aren’t entirely prohibited from operating such channels if their advice is directed towards an unspecified group of people and is free. In this case, a group of advisees can only receive messages and can’t chat back.
Although consultations are possible, financial authorities expect that the non-profit factor and stricter regulations will eliminate these service providers.
“In practice, this will prevent quasi-investment advisors from managing stock leading rooms,” said a spokesperson for the FSC. “Giving investment advice will be the sole duty of registered investment advisories, who give consultations based on guidelines that protect investors.”
Stock advice channels on YouTube will also be subject to register as quasi-investment advisors if their content involve paid incentives. This includes profit earned by monthly YouTube channel membership fees paid by the subscribers. Being a quasi-investment advisor, YouTubers will be prohibited from using live chat functions, preventing them from answering investment related questions.
Even after registering as a quasi-investment advisor, advertising that they can compensate for losses or guarantee profit is strictly prohibited, as fake advertisement is one of the biggest cause of damages.
When advertising their investment consultations, advisors must explicitly state that they can’t manage portfolios for them and that investors are solely responsible for losses.
Using misleading names, such as referring themselves as an investment advisory, is also forbidden.
“Since it takes a considerable amount of time to revise the law, we will implement intensive crackdowns to prevent any damages awarded to investors,” said a FSC spokesperson.
The FSC plans on increasing the surprise inspections from the original 10 per year to 40 and regular inspections of 300 per year to 600.
BY AHN HYO-SEONG [email@example.com]