Financial Supervisory Service Gov. Lee Chan-jin speaks at a press briefing held at the regulator’s headquarters in Yeouido, western Seoul, Thursday. (Yonhap)
Financial Supervisory Service Gov. Lee Chan-jin speaks at a press briefing held at the regulator’s headquarters in Yeouido, western Seoul, Thursday. (Yonhap)

South Korea’s top financial regulator on Thursday warned that misselling concerns tied to US private credit products are only beginning to surface, as uncertainty lingers over potential losses.

Financial Supervisory Service Gov. Lee Chan-jin said retail investors have started raising questions about possible misselling, as risks build in the US private credit market amid rising default expectations and ongoing fund outflows.

“Retail investors have begun to raise inquiries about possible misselling,” said Lee, during a press briefing held at the regulator’s headquarters in Yeouido, western Seoul.

He described the situation as being in the “early stage,” noting that uncertainty remains over the scale of losses.

“Many of these products were sold in the form of fund-of-funds rather than direct investments, meaning investors are often not fully aware of their exposure or underlying structures,” he said.

According to data compiled by the FSS, outstanding overseas private credit investments sold in fund form through major local securities firms stood at roughly 17 trillion won ($11.3 billion). Of the total, the outstanding balance for retail sales amounted to 479.7 billion won.

The figure excludes investments made using proprietary capital by brokerage firms, as well as those by insurers and public funds such as the National Pension Service and the Korea Investment Corporation, suggesting overall exposure could be significantly larger.

“Given the limited transparency of such products, the FSS has asked domestic institutions to obtain detailed updates from US-based asset managers on the extent of risk exposure,” Lee said, referring to how private credit funds face difficulties in valuation, as a significant portion of their lending is extended to unlisted companies.

Lee stressed that the country is only beginning to face the fallout from private credit instability.

“Prolonged tensions in the Middle East could fuel inflation and lead to further rate hikes, potentially spreading risks in overseas private credit funds and raising concerns over the soundness of domestic financial firms, as well as possible misselling to retail investors,” he said.

“It appears that such risks are starting to materialize.”


silverstar@heraldcorp.com