Financial authorities and the private equity fund (PEF) industry have announced standard internal control guidelines that codify organizational structures, roles and authorities, and compliance requirements for general partners (GPs) to strengthen internal controls.
The Financial Supervisory Service (FSS) held an internal control workshop on the 9th at its headquarters in Yeouido, Seoul, for the PEF Management Association and institutional PEF managers, unveiling the GP standard internal control guidelines to enhance self-regulation. This marks the FSS's first internal control workshop for GPs, drawing approximately 350 PEF industry professionals.
The GP standard internal control guidelines consist of three main components: GP internal control organizations, standards and procedures that executives and employees must follow when conducting business, and self-auditing for compliance.
Regarding internal control organization establishment, the authorities and responsibilities of internal control bodies including GP representatives and compliance officers have been specified. These parties are also obligated to monitor employees for violations of laws or standards and to establish and operate management systems. For compliance officers, appointment and dismissal requirements were also stipulated, including a minimum two-year term and dismissal requiring approval from at least two-thirds of all directors.
Regarding compliance requirements during business operations, standards were presented that GP executives and employees must observe to prevent information exchange, conflicts of interest, acceptance of bribes, and unfair trading practices. Finally, regarding self-auditing, the guidelines include mandatory semi-annual reporting of domestic listed stock trading by executives and employees, as well as operation of whistleblower systems.
Previously, GPs as PEF managers were excluded from internal control regulations as they do not qualify as financial companies under the Corporate Governance Act, and no standard internal control guidelines existed. Financial authorities maintain that as the socio-economic impact of PEF managers has expanded—as evidenced by the recent "Homeplus incident"—the need for self-regulation across the PEF industry has grown.
"PEF managers need to restore market trust that has declined due to recent illegal and improper conduct," said Seo Jae-wan, FSS Assistant Governor. "I am well aware that some view this as excessive public regulatory intervention into autonomous areas, but you must clearly recognize that your own failures in self-control have invited external regulation."
"We feel a heavy sense of responsibility for the lost social trust and offer our deep reflection," said Park Byung-gun, Chairman of the PEF Management Association. "We will repay this with bone-deep reform so that this institutional introduction may be evaluated as a decisive turning point for Korea's PEF industry achieving global-level transparency."