[비즈한국] A recent incident occurred where an employee at a Korea Investment & Securities branch used client funds for gambling. The employee was later found dead on a hiking trail in Seoul. While Korea Investment & Securities has not disclosed the exact amount of damages, it is reported to be as high as hundreds of millions of won. Korea Investment & Securities has not released an official statement regarding the incident.
Korea Investment & Securities is pushing to launch an Investment Management Account (IMA) business. An IMA is a principal-protected financial product offered by securities firms that provides higher interest rates than bank savings accounts. Once a securities firm is authorized to operate an IMA business, it can utilize the funds received from customers to engage in aggressive investments.
Within the securities industry, the approval of Korea Investment & Securities’ IMA business had been considered a fait accompli. Ko Yeon-soo, a researcher at Hana Securities, analyzed, "After obtaining IMA approval in the fourth quarter, (Korea Investment & Securities) can expect a full-scale expansion of operating profits, so expectations for stable profit growth in the mid-to-long term remain valid." Woo Do-hyung, a researcher at Yuanta Securities, stated, "It is expected that the IMA approval will be decided by the end of this year," adding, "The funding scale for Korea Investment & Securities’ IMA is estimated to be around 10 trillion won."
However, this incident involving the misappropriation of client funds could negatively impact Korea Investment & Securities' IMA business application. Financial authorities announced in August that they added business plans and social credibility to the requirements for IMA review. An employee of Korea Investment & Securities using client funds can be judged as an act contrary to social credibility. There is also criticism that the internal control system within Korea Investment & Securities is not functioning properly. However, as the police investigation is currently underway, it is too early to jump to conclusions about the outcome.
This is not the first time Korea Investment & Securities has faced controversy over internal controls. In March of this year, Korea Investment & Securities filed a corrected business report for the years 2019–2023. This was because approximately 5.7 trillion won in revenue had been overstated in the process of reflecting profits and losses from internal currency exchange transactions between the firm's retail and foreign exchange departments in its financial statements. In response, the Financial Supervisory Service (FSS) issued a 'caution' to Korea Investment & Securities.
Furthermore, in April of this year, the FSS issued an 'institutional warning' to Korea Investment & Securities due to mis-selling. The move came after it was found that some employees at Korea Investment & Securities branches violated their duty to comply with the suitability principle while selling private equity funds.
If the controversy over Korea Investment & Securities' internal controls resurfaces, it could act as a variable in the financial authorities' review. In October, at a 'Field Meeting for a Great Transformation toward Consumer and Commoner-Centered Finance,' Financial Services Commission Chairman Lee Bok-hyun emphasized, "We will move away from the familiar perspective and behavior of listening primarily to voices within the financial sector, and instead listen to and reflect the voices of consumers and vulnerable groups."
The financial authorities' IMA review is reportedly entering its final stage. Korea Investment & Securities and Mirae Asset Securities006800 are considered the leading candidates. NH Investment & Securities005940 also applied for an IMA business license, but it is known that its review is being delayed as its application was submitted later than those of Korea Investment & Securities and Mirae Asset Securities.