FSS: "Real Estate Trust Companies Should Strengthen Risk Management for Lawsuits Over Liability-Limitation Clauses"

Financial authorities convened compliance officers and executives in charge of management at 14 real estate trust companies, calling for stronger risk management related to lawsuits over liability-limitation clauses and tighter internal controls when issuing surety insurance certificates.

The Financial Supervisory Service (FSS) held a meeting on the afternoon of Nov. 10 at the Korea Financial Investment Association in Yeouido, Seoul, with compliance officers and executives in charge of management at 14 real estate trust companies.

Seo Jaewan, a deputy governor of the FSS, called for stronger soundness and liquidity management in connection with lawsuits over liability-limitation clauses. Such clauses limit a trust company's liability for fulfilling obligations to purchasers to the scope of the trust property. "There have recently been cases in which some trust companies lost lawsuits to rescind pre-sale contracts because they failed to adequately explain liability-limitation clauses," Seo said. "Trust companies should thoroughly assess the possibility of their own funds flowing out, such as to refund deposits, if they lose a lawsuit, and proactively manage their soundness and liquidity. They should also fully meet their duty to explain liability-limitation clauses to protect purchasers' rights and interests."

He also outlined precautions related to trust companies' issuance of surety insurance certificates. "There have been cases in which trust companies issued and submitted surety insurance certificates to licensing authorities on behalf of project developers in connection with project financing (PF) projects, but had to bear the related costs when the developers defaulted," Seo said. "Internal controls need to be strengthened by ensuring that surety insurance certificates are issued within the scope of land trust agreements and tightening procedures for managing corporate digital certificates during the issuance process."

He also called for improvements to fund-management agency services for regional housing cooperatives. "Despite frequent legal disputes involving trust companies over fund-management agency services for regional housing cooperative projects, there are no standardized work guidelines," he said. "The FSS will discuss establishing common industry guidelines in consultation with the Korea Financial Investment Association and the real estate trust industry."

The FSS plans to maintain communication with the industry to support sound business practices in the real estate trust sector.

This content was produced with the assistance of AI translation services.