Regulator to audit Korea Investment & Securities

By Kim Yoo-chul, Nam Hyun-woo

The Financial Supervisory Service (FSS), the country's top financial regulator, said it will initiate a probe of Korea Investment & Securities. The inspection will begin May 8 and go through June 1.

In a statement, the FSS said it will send 18 skilled inspectors to the headquarters of the brokerage. The agency said the inspection is aimed at looking into the brokerage's business “across the board.”

The regulator added the inspection has “no relation” with the ongoing probe into Samsung BioLogics after the Samsung affiliate was suspected of being involved in breaching accounting rules when it made its initial public offering (IPO) in 2016.

The brokerage was one of the lead managers to handle the Samsung IPO at that time.

“The planned audit of the brokerage is part of a scheduled plan by the FSS in which the regulator plans to audit brokerages whose total equity surpasses 1 trillion won,” an FSS official said.

Korea Investment & Securities is the only brokerage the FSS has given a license to manage investment bank (IB) operations, making it possible to issue short bills on a need basis.

Although the FSS said the inspection is a “scheduled one,” analysts and watchers say the regulator will “deeply look into” cases whether the brokerage has any issues that are clash with regulatory practices during Samsung BioLogics' listing process.

FSS said Samsung BioLogics had violated accounting rules to “deliberately inflate” its profit before the listing. But the Samsung affiliate said its listing met within “legal guidelines” based on an IFRS standard, an international accounting measure.

Samsung BioLogics, listed on the local stock market in November 2016, showed a dramatic turnaround in its accounting books, logging 1.9 trillion won in net profit in 2015, shifting from a loss in the previous four years.

At that time, Korea Investment & Securities said, “Samsung BioLogics posted operating losses because of the nature of a bio contract manufacturing organization in which a company takes two to three years to create sales and operating profit.”