FSS orders firms to inspect risky overseas real estate investments

South Korea’s financial regulator has ordered domestic securities firms to inspect their overseas real estate investments amid rising concerns that some real estate asset prices may plunge due to coronavirus-triggered economic impacts. 

The Financial Supervisory Service (FSS) sent out official documents to 20 major securities firms calling for “in-house inspection on overseas real estate investment and transactions,” according to sources on June 3. 

“We have warned securities firms about the risk several times before ordering them to conduct a full investigation as a precautionary measure,” said an FSS official. “The risk of overseas real estate is currently cited as a major risk factor for investments by financial institutions around the world.” 

The FSS told securities firms to report the inspection results not only to it but also to their board of directors. “We plan to look into the results from the end of June when the self-inspection is completed,” the FSS official said. 

The securities firms seem perplexed by the call. “It is understandable that it is the regulator’s responsibility to minimize the risk of contingent liabilities of securities firms but it is totally incomprehensible to pressure us to disclose even some information that should be kept as confidential,” an industry source said, referring to overseas real estate transaction histories. 

Another official did not hide his complaint, saying that it seems to be excessive interference by the FSS in the name of preventing accidents. 

According to the FSS, domestic securities firms’ exposure to overseas real estate stood at 11.1 trillion won ($9.1 billion) as of the end of September 2019. The proportion of investment in overseas real estate funds is the largest at 6.7 trillion won, followed by 2.9 trillion won in loan guarantees and 1.3 trillion won in loans. (Reporting by Jinwon Lee)