According to an exclusive report by Edaily on the 27th, the FSS recently interviewed officials from Hanshin Rating to examine the operational structure and procedures of the “Insight Sessions” and secured relevant materials, including information on participating asset management firms.
This inspection took place as part of an investigation into whether the credit ratings assigned by the three major credit rating agencies were appropriate in relation to the defaults of JR GLOBAL REIT and the Joongang Group. Separate from the review of rating appropriateness, Hana Credit Rating’s sales practices targeting institutional investors have now come under scrutiny.
The “Insight Sessions” were conducted in a manner where participating institutions would submit their desired industry sectors, companies, corporate groups, and market issues in advance, and analysts specializing in those areas would then provide one-on-one, customized responses. Han Shin Rating provided meals and a tour of the Hanwha Pompidou Center to participants in both the morning and afternoon sessions. Han Shin Rating is the first credit rating agency to invite individual institutional investors to hold private briefings.
The Financial Supervisory Service (FSS) is focusing on whether credit ratings were used in the course of business operations. Given the confidential nature of the Insight Sessions—which are tailored to the specific interests of individual asset management firms—the FSS believes that regulatory violations may have occurred during this process.
Current capital market laws and regulations define the use of credit ratings to secure rating contracts or the exchange of financial benefits related to credit ratings as serious unethical business practices. The requirement to establish systems to prevent conflicts of interest—such as separating rating and sales departments—serves the same purpose.
An FSS official stated, “There are regulations prohibiting credit rating agencies from using credit ratings for business purposes, and we were concerned that such practices might have occurred through the ‘insight session’ format,” adding, “We followed standard inspection procedures to verify with the responsible personnel how the sessions were conducted and what kind of events they were.”
In the actual market, concerns have long been raised that sensitive information—such as rating actions prior to official announcements or future rating directions—could be exchanged. It is reported that Korea Ratings Corporation(034950)and NICE Credit Rating also considered hosting similar events but scrapped the plans entirely due to concerns over potential regulatory sanctions.
Previously, an official from a credit rating agency stated, “This is an unusual business practice that has never been attempted in the credit rating industry,” adding, “As contact with market participants intensifies, the difficulty of managing risks—such as controversies over information asymmetry—may increase.”
However, it appears it will take some time before a final conclusion is reached. The Financial Supervisory Service (FSS) is currently conducting an internal review based on the inspection materials.
The official added, “We are reviewing whether the suspected violations, based on the inspected materials, have been substantiated,” and noted, “Since the inspection was completed only recently, it is difficult to give a definitive answer on what conclusion will be reached.”
Han Shin Rating countered that the seminar was not an inappropriate sales activity but rather a measure to enhance market transparency. The company maintains that it will continue the seminar while strengthening transparency and upholding its original purpose of expanding market communication.
A Han Shin Rating official stated, “This was an official market communication program conducted within the scope of publicly disclosed information,” adding, “We have enhanced transparency by formalizing communication—which previously took place informally through individual contacts—through procedures such as official applications, review of advance inquiries, and attendance at all sessions.”
