FSS investigates claims of brokers, banks favoring affiliate ETFs in sales

Financial authorities are ramping up investigations into claims that financial firms have favored selling exchange-traded funds (ETFs) from their affiliated asset management companies. To ensure fairer market practices, the sales of funds by affiliated companies are capped at 25 percent. However, there is no such restriction for ETFs.

According to industry officials, Friday, the Financial Supervisory Service (FSS) recently requested data from 16 securities firms, including Samsung Securities, Korea Investment & Securities and KB Securities, which have affiliated asset management companies.

Major banks and insurance companies have also been asked to provide records of affiliated ETF transactions and wrap account details. A wrap account is an investment account managed by a broker for a flat annual fee.

This marks an expansion of the investigation, 한국을 which initially involved written inquiries to several asset management firms.

The FSS will look into whether asset management companies were supported by affiliates within the same financial group in the process of increasing ETF net asset values.

The investigation took place as allegations have surfaced from political circles.

During a National Assembly session on July 25, Rep. Kang Hoon-sik from the Democratic Party of Korea raised suspicions that banks and securities firms may have been prioritizing the sales of ETFs from their affiliated asset management companies and allocating larger volumes to them.

The total net assets of domestic ETFs have surged by nearly 50 percent over the past year, reaching 154 trillion won ($113.3 billion), according to Kang.

Whether the FSS will proceed with on-site inspection will depend on the findings from the analysis of the submitted documents.

“It is a broad audit, not directed at any particular financial institution,” an FSS official said.