Securities firms feared to become target as watchdog launches special inspection team

A signboard of the Financial Services Commission in Seoul / Yonhap

By Lee Min-hyung

A special investigative body launched by Korea's financial watchdog is straining securities firms on fears that they may become a target of the new inspection team.

According to the Financial Services Commission (FSC), its newly-launched Special Judicial Police started its operation on Thursday to step up an investigation into any illegal acts in the local capital market. The team consists of seven officials from the FSC and the Financial Supervisory Service (FSS).

The launch of the team is aimed at protecting investors' rights and maintaining fairness in the capital market, according to the FSC.

The watchdog decided to launch the special investigative team as more retail investors have jumped into the stock market after the outbreak of the COVID-19 pandemic in early 2020.

Back in July 2019, the FSS established a similar inspection team to look into any unfair trading acts in the capital market, such as stock manipulation.

The dual monitoring system by the FSS and FSC comes as pressure to the local securities industry amid fears that the regulators may carry out further investigation into a set of recent scandals surrounding the mis-selling of risky fund products operated by Lime Asset Management and Optimus Asset Management.

In September 2019, the FSS' Special Judicial Police team launched an investigation into Hana Financial Investment after one of its researchers allegedly reaped undue profits by engaging in unfair stock trading before releasing a research report on a certain company. This was the first investigation launched by the team.

As legal disputes on the fund fiasco have not come to an end, the securities industry is paying close attention as to which company will become the first target of the FSC's judicial police team.

“Securities firms will have to keep paying sharp attention to the launch of the new investigative authority at a time when they are still suffering from the aftermath of the fund fiasco controversy,” a financial industry source said.

But chances are, the team might launch its first investigation into Edison EV, an affiliate of Edison Motors. Edison EV's stock trading is suspended after its auditor rejected offering an opinion on the firm's financial statement on Tuesday.