"Due Diligence Report Attachment Mandatory" Financial Supervisory Service to Strengthen Disclosure for Overseas Real Estate Funds

The Financial Supervisory Service will significantly revise its disclosure forms starting next month, requiring overseas real estate funds to attach due diligence reports at the design and structuring stage. This measure is intended to strengthen asset managers’ internal checks and responsibility for internal control, thereby enhancing investor protection.

The Financial Supervisory Service announced on March 25 that it has prepared an amendment to the disclosure forms for overseas real estate funds, which will mandate the attachment of due diligence reports, visualization of profit and loss structures, and disclosure of stress scenarios. These changes will take effect from April 1. This is part of the measures to strengthen consumer protection throughout the life cycle of financial products, as outlined in the "Financial Consumer Protection Roadmap" announced at the end of last year.

Accordingly, asset management companies must attach their own internal due diligence records and evaluation opinions from their internal control departments, and obtain signatures from the CEO, compliance officer, and risk management officer. In addition, the fund’s profit and loss structure, reflecting real estate price fluctuations and loan conditions, must be presented in a graphical format to visually indicate potential loss ranges.

Furthermore, scenario analysis results must be included so that investors can intuitively recognize the scale of losses in cases such as interest rate hikes or rising vacancy rates. This includes situations where the annual dividend yield drops to 0%, or the fund’s liquidation return falls to -50% or -100%.

Through these regulatory improvements, the Financial Supervisory Service expects to strengthen asset managers’ self-verification functions from the fund design stage and clarify accountability for any product defects. The agency also believes that investors will be able to better understand investment risks by reviewing due diligence reports, profit and loss structures, and scenario analyses. A representative from the Financial Supervisory Service stated, “We will continue to steadily implement the tasks outlined in the Financial Consumer Protection Roadmap going forward.”

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