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[Alpha Biz= Kim Jisun] South Korea’s Financial Supervisory Service (FSS) is set to conduct on-site inspections of securities firms to examine potential issues related to the practice of "captive sales," where firms promise direct or indirect investments in corporate bond issuances in exchange for acting as the lead underwriters.


According to sources in the financial investment industry on Thursday, the FSS will begin inspections at Mirae Asset Securities and Samsung Securities from April 21 to May 15.


The practice has raised concerns in the industry, with allegations that securities firms, when taking on the role of lead underwriter for corporate bonds, promise to support the issuance by committing to participate in demand forecasting or underwriting, often at the issuer's required interest rates. In some cases, firms have reportedly underwritten bonds using their own funds, only to incur losses and subsequently dispose of the bonds, distorting the market.


Earlier, FSS Governor Lee Bok-hyun had stated, "We plan to focus on inspecting issues related to captive sales in the first half of this year to address unfair practices in the bond market."


The FSS intends to focus on identifying any improper sales activities in the captive sales process. Industry experts anticipate that this on-site inspection will be the first in a series of inspections targeting securities firms.

 

 

 

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