South Korea to implement new risk disclosure standards for high-risk funds

The Financial Supervisory Service (FSS) will implement a ‘Standardized Core Risk Plan’ for public offering funds starting September 30. This measure aims to help investors better understand the risks associated with high-risk products following previous incidents of significant losses in overseas real estate funds.

The new regulations apply to 10 specific fund types, including overseas real estate funds, REITs, Equity Linked Funds (ELF), Derivative Linked Funds (DLF), leverage and inverse funds, and covered call funds. Financial institutions must clearly state ‘principal loss risk’ and can include up to three specific risks per fund. To prevent misunderstanding, companies must use easy-to-understand language and may use bold text or charts to illustrate profit and loss structures.

For leverage and inverse products, firms must disclose the maximum potential loss rate under extreme scenarios. For example, if an underlying asset hits its daily limit of -30%, a 2x leverage product must explicitly state an expected maximum daily loss of -60%.

Additionally, asset managers must disclose their history of large-scale losses. If a manager has previously seen losses exceeding 20% in similar products, they must specify the product name, investment region, asset type, date of loss, and the scale of the loss. If no such history exists, they must state that clearly.