IPO risk management to be strengthened in wake of Fadu controversy

Financial Supervisory Service headquarters in Seoul / Yonhap

The Financial Supervisory Service (FSS) has announced several measures to strengthen the risk management of initial public offering (IPO) procedures, in an apparent effort to prevent another incident like Fadu.

On Monday, the FSS stated that it has updated the guidelines for disclosing investment risks, aiming to improve the disclosure practices of companies. Under these revised guidelines, companies — especially those undergoing an IPO — are required to include the latest figures for their sales and operating profits or losses in their securities registration statements.

If a company fails to include such figures when initially filing a statement, it will be required to update and complete this information by the day before the statement becomes effective. In cases where the effective date is within a month after the initial filing, the company must submit a revised statement that includes the provisional results for the month preceding the effective date.

Additionally, the FSS has disclosed 30 exemplary cases in which it requested clarification from corporations last year. This disclosure aims to encourage companies to actively consider the latest examination guidelines when drafting their statements. It also ensures that information crucial for investment decisions is promptly available.

Fadu, a fabless startup, became embroiled in controversy last November as its corporate value plummeted by nearly 40 percent following its listing on the Kosdaq. There were suspicions that the firm and its underwriters had withheld poor figures to boost its IPO price. A month later, the FSS promised to develop measures to overhaul the IPO process.

The FSS is scheduled to conduct a meeting with securities companies next month.

"Through regular sessions with lead managing firms, we aim to actively foster market communication, and persistently refine our examination practices, all while adhering to principles of investor protection," an FSS official said.