The Financial Supervisory Service (FSS) has met with seven comprehensive investment firms and called for thorough risk management and enhanced investor protection in their operation of short-term notes and integrated management accounts (IMAs).
The FSS said Tuesday it held a meeting with heads of operations and audit divisions from the seven comprehensive investment firms on the 21st.
"As a genuine turning point toward productive finance has been established, market expectations are high for the role of securities firms in supplying venture capital," FSS Deputy Governor Seo Jae-wan said in opening remarks. "Comprehensive investment firms must spare no effort to ensure investor protection and risk management, and must establish more thorough internal controls than ever before."
According to the FSS, funding raised by comprehensive investment firms has surged following the launch of the short-term note system in 2017 and IMAs in 2025. Short-term note funding, which stood at 15.6 trillion won at the end of 2020, is projected to reach 54.4 trillion won as of the end of March this year. IMA funding is also expected to grow from 1.2 trillion won at the end of last year to 2.8 trillion won at the end of March this year.
The FSS requested that firms strengthen liquidity management of assets funded through short-term notes to secure their own capacity to respond to stress situations such as deteriorating market conditions. It also asked firms to carefully review asset liquidity in advance when selecting investment assets, to avoid disruptions in recovering client funds before IMA maturity.
The regulator also emphasized that comprehensive investment firms should expand their supply of venture capital by identifying future growth companies with latent potential and supporting them through equity investment. However, the FSS called for improvements in corporate credit extension screening and credit risk management to ensure the continuous supply of high-quality venture capital. "We plan to actively support the financial investment industry's capacity-building efforts to strengthen venture capital supply, including by establishing a 'best practices code for corporate credit extension,'" an FSS official said.
The FSS also urged firms to establish a preemptive response system for overseas private credit funds. It requested that firms actively communicate with foreign asset managers to obtain early information on redemption trends and loss scale of overseas invested funds and promptly inform investors, as well as analyze the soundness status and liquidity risks of overseas private credit funds by major industry sectors to preemptively prepare for potential risks.
In response, executives of the comprehensive investment firms said the firms' soundness remains solid given their recent favorable business performance and capital scale, and that they will continue to lead productive fund supply in the capital markets through expanded supply of substantive venture capital, including investments in small and medium-sized enterprises and venture firms.
The executives also expressed agreement on the need to strengthen risk management systems befitting the securities industry's fundamental role in expanding productive finance and the status of comprehensive investment firms, and indicated their willingness to comprehensively re-examine internal controls at each stage of client asset management and sales from an investor protection perspective.
"We will actively identify potential risk factors by analyzing the operational status of comprehensive investment firms and guide improvements," an FSS official said. "We plan to continuously monitor detailed conditions related to venture capital supply by comprehensive investment firms, communicate with the industry, and actively pursue necessary institutional improvements."
