FSS to overhaul IPO process to prevent another Fadu fiasco

The headquarters of the Financial Supervisory Service (FSS) in Seoul / Yonhap

The Financial Supervisory Service (FSS) plans to draw up specific measures to overhaul the initial public offering (IPO) process of underwriters, aiming to prevent a recurrence of a listing fiasco like the Fadu case.

According to the FSS, the state-run financial watchdog agency held the first meeting of its taskforce on Thursday afternoon, with the goal of bringing improvements and more transparency to the country's IPO underwriting process.

The taskforce will closely look into matters significant to the listing procedures, including due process, determination of corporate values and public offering price, business practices and the preparation of prospectus documents, to come up with effective measures.

The meeting was attended by officials from relevant agencies, including the FSS' disclosure examination division and corporate disclosure division, as well as industry participants, including the Korea Financial Investment Association (KOFIA), the KOSDAQ Listed Companies' Association, several securities firms and asset management companies. Research institutes, accounting firms and academia also joined the meeting.

The FSS said that participants voiced a shared view that the role of underwriters needs to be strengthened, based on autonomy and responsibility, to earn the trust of investors and to ensure the long-term development of the IPO market. The attendees of the meeting also agreed to seek practical ways to establish rational business practices in the IPO market.

The taskforce will work on effective solutions to address emerging issues related to IPO underwriting, such as fabrication of corporate valuation or failing to notify of investment risks, so that information asymmetry between issuers and investors can be redressed.

"After listening to extensive opinions gathered through various discussions with relevant agencies such as the Korea Exchange (KRX) and public hearings, the taskforce plans to draw up improvement measures by the end of the second quarter next year," an official from the FSS said.

The country's IPO underwriting process earned a market distrust after the recent listing of Fadu, a fabless semiconductor unicorn, whose prospectus submitted during the IPO process is shown to have included fraudulent earnings estimates, wreaking havoc on investors joined during the public offering. Victims are now preparing a class action against underwriters of the Fadu IPO and plan to file legal proceedings early next year.