Korea‘s financial watchdog to inspect internal controls at 30 PEFs

South Korea‘s Financial Supervisory Service (FSS) will review internal control systems at about 30 private equity fund managers, focusing on whether compliance monitoring and safeguards against conflicts of interest work effectively in practice.

The FSS said Monday that it would conduct the reviews in stages starting this month. The firms under scrutiny account for 46.5 percent of total committed capital among domestic independent private equity fund managers.

The regulator will collect internal control policies and implementation records for document-based reviews. It will also interview staff and conduct on-site inspections at some large general partners.

The FSS will focus on five areas ? internal control structures, compliance officers, information barriers, conflict-of-interest assessments, and employees’ trading in financial investment products.

The FSS will examine the internal control responsibilities of chief executive officers and boards, procedures for reporting and responding to incidents, and the qualifications, independence, compensation, and performance of compliance officers. It will also review how firms identify and address potential conflicts of interest, monitor employees’ securities trading, operate whistleblower systems, and conduct staff training.

The review comes about six months after the FSS introduced standard internal control guidelines for GPs managing institutional-only private equity funds in March. The regulator had also urged PEF executives to strengthen ethical management and social responsibility at a meeting in January, followed by an internal control workshop in March.

The FSS plans to share best practices and shortcomings across the industry and provide firm-specific guidance on improvements. It will also consider revising its standard guidelines, expanding future inspections and differentiating supervision and examinations according to firms’ internal control standards.