Financial regulator urges asset managers to curb exaggerated ETF ads, boost oversight

Financial Supervisory Service (FSS) Governor Lee Bok-hyun has called on asset management firms to urgently self-regulate their advertising practices and enhance internal controls, particularly concerning exchange-traded funds (ETFs).

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Investors primarily rely on fund manager advertisements when choosing ETFs, making false or exaggerated advertising a very serious issue for investor protection.

Lee expressed disappointment that "big asset managers," which should set industry examples, have been frequently involved in cases of exaggerated or false advertising. He highlighted recent controversies surrounding promotions for initial public offerings (IPOs) and ETF inclusions, emphasizing that such practices are serious violations of investor protection.

During a meeting with CEOs of 20 asset management firms, Lee urged them to diligently manage tracking errors for ETFs and to actively participate in supplying venture capital. He stressed the importance of asset managers identifying and investing in promising companies, distributing growth profits to investors, and establishing a virtuous cycle of productive finance.

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The frequent occurrence of such cases, especially among large asset managers who should be role models for the industry, is very regrettable.

The FSS governor also called for strengthened fiduciary duties, noting that while some firms like Samsung, NH Amundi, and VIP Asset Management were recognized for exemplary shareholder rights activities, many still rely on "copy-paste" disclosures for voting. He urged companies to develop more substantive shareholder voting policies and disclosure systems that facilitate genuine communication with investors. Lee added that with the increasing weight of fiduciary duty assessments in domestic pension funds' evaluations of external asset managers, it is crucial to ensure internal control systems for shareholder rights are effectively implemented.

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Many instances of 'copy-paste' voting disclosures were confirmed, which urgently needs improvement.