A view of Korea Investment & Securities headquarters (Yonhap)
SEOUL, Oct. 16 (Korea Bizwire) — South Korea’s financial regulator has launched an on-site inspection into securities firms and banks accused of mis-selling a 90 billion won ($65 million) investment product that collapsed entirely, marking the first major consumer protection probe under the leadership of newly appointed Financial Supervisory Service (FSS) Governor Lee Chan-jin.
The FSS said Wednesday it began inspections at Korea Investment & Securities, KB Kookmin Bank, and Woori Bank — the primary sellers of the so-called “Belgium Fund.” Korea Investment & Securities sold about 58.9 billion won of the product, while KB Kookmin and Woori sold roughly 20 billion won and 12 billion won, respectively.
The fund, created in June 2019 by Korea Investment Real Asset Management, was marketed as a safe investment tied to long-term leases of office buildings used by Belgian government agencies.
It promised steady returns over five years, after which the lease rights would be sold to generate profits. But soaring interest rates and a downturn in Europe’s property market derailed the sale, leading to a total loss.
Yeouido’s financial district. (Image courtesy of Yonhap)
In a March filing, the fund manager acknowledged that it expected “no distributions to investors upon redemption.” Investors, however, argue they were assured the fund carried “virtually no risk” because of the 100 percent occupancy and its association with the Belgian government.
“We are focusing on whether mis-selling occurred,” an FSS official said, adding that the probe was prompted by mounting investor complaints.
If investigators confirm that sales staff told clients the fund “could not lose money,” compensation liability for the distributors could be significant, according to financial industry officials. Korea Investment & Securities has already begun voluntary compensation ranging from 20 to 50 percent of investors’ losses.
Governor Lee has emphasized that consumer protection will be a top priority during his tenure. In a recent meeting with financial executives, he warned against selling products “that employees themselves cannot fully understand or would not recommend to their families,” urging firms to strengthen disclosure and eliminate mis-selling practices.
The government is also pursuing legal reforms to expedite small-scale dispute resolutions, including a “one-sided binding” rule under which a financial firm must comply with an FSS arbitration ruling if an investor accepts it — effectively giving such settlements the same legal force as a court agreement.
The outcome of the Belgium Fund probe is expected to signal how far the Lee administration’s financial watchdog will go in holding institutions accountable for investor losses in the name of consumer protection.
Ashley Song (ashley@koreabizwire.com)
