Disclaimer #

This article provides a general explanation of the electronic securities system and the framework for protecting financial information. It should not be construed as legal advice regarding any particular financial product or transaction.

A Principle Designed to Prevent Conflicts of Interest and Information Misuse #

It may seem natural to assume that an asset manager knows exactly who has invested in its funds and how much each investor holds. In practice, however, the financial market is structured differently.

When an investor purchases a fund through a securities firm or bank, the investor’s individual holdings are recorded in the books of the distributor or account management institution responsible for managing the account. An asset manager can access information necessary to manage the fund, such as its total assets under management or balances by distributor, but it cannot always freely inspect individual investors’ names, accounts, and subscription and redemption histories.

Why was the system designed this way?

In short, the system is not intended simply to conceal personal information. Rather, it reflects a fundamental principle of capital-market infrastructure: protecting the confidentiality of financial transactions, separating institutional responsibilities, and preventing conflicts of interest and information misuse.

The Institution That Creates the Product Is Different from the Institution That Manages the Account #

The fund distribution structure can be simplified as follows:

• Asset management company: Designs the fund and manages its assets
• Distributors, such as securities firms and banks: Sell products to investors and manage customer accounts
• Trustee: Holds and administers fund assets
• Electronic registration institution and account management institutions: Record ownership interests and holdings of securities in their books

The important point is that an asset manager is not the institution that directly opens or manages an investor’s account. Investors open accounts with securities firms or banks, not with the asset manager. The relevant account management institution is therefore responsible for maintaining the books containing customers’ names, account numbers, holdings, and transaction histories.

The structure can be compared to manufacturing as follows:

• Asset management company: Product manufacturer
• Account management institution: Institution that manages the customer’s vault and transaction ledger

A manufacturer needs to know how much of its product has been sold overall, but it does not necessarily need to identify every purchaser or monitor every transaction in real time. The fund distribution structure works in much the same way.

First Reason: Protecting the Confidentiality of Financial Transactions #

Customer account books contain more than names and contact details. They may include information that reveals an individual’s financial position and investment preferences, such as which financial products the person holds, how much they hold, and when they subscribed to or redeemed them. Such information may be treated as even more sensitive than ordinary personal information.

The Act on Real Name Financial Transactions and Confidentiality generally prohibits financial transaction information from being provided or disclosed to another person without the account holder’s written request or consent. The Personal Information Protection Act likewise restricts the use of collected personal information for purposes other than those for which it was collected and its provision to third parties.

From the perspective of an account management institution, an asset manager may be treated as a separate third party in relation to the customer account, even though both institutions operate within the financial industry. The fact that an asset manager created or manages a particular financial product does not, by itself, justify providing it with all of the customer’s financial transaction information.

Second Reason: Preventing Information Misuse and Conflicts of Interest #

If an asset manager could continuously access information about individual investors, various conflicts of interest could arise.

• Providing separate information only to customers who have invested large sums
• Contacting investors individually to discourage them from making large redemptions
• Using a distributor’s customer information for direct marketing
• Attempting to influence a particular investor’s exercise of voting rights
• Treating large investors differently from ordinary investors

Having more investor information may appear to strengthen investor protection. Conversely, however, it also increases the possibility of discrimination or undue influence arising from informational advantages.

From a regulatory perspective, the system can therefore be understood as providing asset managers with the information they need for investment management while allowing personally identifiable customer information to be disclosed only on a limited basis when a legitimate legal purpose exists.

Third Reason: Ensuring the Reliability of the Books and Clarifying Accountability #

Electronic securities records are not merely reference materials. The information recorded in them is important evidence for determining who holds the rights to a particular security.

If issuance-related institutions and account management institutions could all access and participate in maintaining the same customer records, the following problems could arise:

• Discrepancies in quantities between different records
• Duplicate or omitted transactions
• Unclear accountability when an error occurs
• Risk of information being altered or leaked by insiders
• Increased security vulnerabilities resulting from system access by multiple institutions

To reduce these risks, the electronic securities system assigns responsibility for preparing and maintaining each type of record to a designated institution. A customer account book is prepared and maintained by the account management institution responsible for the relevant customer account. Restricting access is therefore not only about preserving confidentiality; it is also a mechanism for clearly identifying who manages the official record and who is responsible for errors.

Does This Mean Asset Managers Cannot Identify Investors at All? #

The short answer is no.

Issuers and asset managers are not absolutely prohibited from accessing investor information. There are circumstances in which they must identify investors in order to administer rights, including dividend and interest payments, voting rights, shareholder meetings, and beneficiary meetings.

Under the Electronic Securities Act, when a specific record date or a similar date is established, the electronic registration institution may prepare a statement of owners containing information such as each owner’s name, address, and number of securities held. Through this formal procedure, an issuer can receive the information necessary for investors to exercise their rights.

The key issue is not whether information may be provided, but how it is provided and to what extent. Rather than allowing an issuer to freely inspect an account management institution’s customer records in real time, the system allows it to receive only the necessary information through prescribed procedures when a legal need arises. Information may also be provided within the scope permitted by applicable law when the investor has consented or when a court, tax authority, investigative agency, or other authorized body makes a lawful request.

Operational Statistics and Personally Identifiable Customer Information Are Different #

To manage a fund properly, an asset manager needs information such as the fund’s assets under management, redemption volume, cash inflows and outflows, and balances by distributor. As a result, aggregated information necessary for investment management may need to be delivered even without identifying individual investors.

Consider the following two pieces of information, which are different in nature:

KRW 10 billion was redeemed today through Distributor A.

This information is necessary for investment management and settlement. Based on it, the asset manager can secure the fund’s liquidity and sell assets as needed.

The following, by contrast, is personally identifiable financial transaction information:

Customer Kim redeemed KRW 3 billion from a particular account.

An asset manager may receive this type of personally identifiable information only in very limited circumstances. The current system applies the minimum necessary information principle, providing the information needed for investment management while minimizing the disclosure of personally identifiable information.

Summary #

In summary, the reason asset managers and other issuance-related institutions cannot freely access customer records held by account management institutions is not because issuers are considered untrustworthy.

1. Protecting the confidentiality of investors’ financial transactions
2. Preventing personal information from being used for purposes other than those for which it was collected
3. Separating the roles of asset managers and distributors
4. Preventing conflicts of interest, including preferential treatment of large investors
5. Preventing improper business practices that exploit customer information
6. Ensuring the integrity of electronic securities records and clarifying accountability

Ultimately, the system begins with a basic principle: information necessary to manage a financial product should be provided, but an individual investor’s financial information should be disclosed only to the extent necessary and only when there is a legitimate purpose and legal basis. Restrictions on access to investor information are not intended to make financial institutions’ work more difficult. They are safeguards designed to protect the confidentiality of financial transactions and maintain trust in the financial market.

References #

• Act on Electronic Registration of Stocks and Bonds
• Article 4 of the Act on Real Name Financial Transactions and Confidentiality
• Article 18 of the Personal Information Protection Act