Offshore fund registration delays put asset managers in bind

South Korea's top financial regulator has been taking longer than the usual three months to review applications of offshore funds, dealing a heavy blow to global asset managers awaiting regulatory approval to gather investment money from Korean asset owners.

In turn, the protracted registration process of offshore funds has been a setback to Korean pension funds and insurance companies in their push for overseas alternative investments.

“Because of the difficulty conducting onsite due diligence in the aftermath of the pandemic, we have increased reliance on global asset managers,” a Korean retirement fund official told The Korea Economic Daily. “But the administrative delay is setting back the execution of our investment.”

The Financial Supervisory Service (FSS) oversees the sale and registration of investment funds. The delay in its fund application reviews was triggered by an investigation into high-profile fraud scandals involving domestic private equity funds sold by Lime Asset Management Co. and Optimus Asset Management Co.

Some of the FSS employees in charge of fund registration have been assigned to the probe that began last year.

Further, personnel transfers carried out at the regulatory body late last month have brought fund examination work to a halt, according to financial industry sources on Mar. 3.

“We have filed a string of applications (for offshore funds). But because of the change in regulatory officials, we may have to start from scratch with them,” said an asset management official.

It now takes around six months for an offshore fund to win regulatory approval and be registered in South Korea.

Last year, only 151 offshore funds were registered as of the end of November, almost half of the 299 enrolled in the year-earlier period. Last year’s number is exceptionally low, even taking into account the impact of the COVID-19 pandemic, the sources said.

Some industry watchers pointed out that the regulatory FSS has tweaked the fund registration system, stipulated under domestic law, into virtually a permit system. Backing up this argument, they said the FSS has been sitting on application files for too long without a reason, despite the applicants meeting legal and regulatory requirements, such as the size of capital and assets, as well as having no criminal records in their home countries.

“The South Korean government is promoting itself as a global financial hub, but it seems not to take care of its software,” said a global asset management official.

In response, FSS blamed a shortage of workers and the pandemic-caused suspension of its operations for the protracted registration of offshore funds.

“Until last year, only one department (at the FSS) handled the registration process for both onshore and offshore funds. And a workforce shortage led to the delay in our examination process,” said an FSS official.

Write to Hyun-Il Lee and Seon-Pyo Hong at hiuneal@hankyung.com
Yeonhee Kim edited this article.