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Regulators Mandate Disclosure of Maximum Loss Potential for Leverage Funds
Finance · Investment Managers · yonhap_finance · 2026-08-25
Starting next month, financial firms in Korea must disclose potential maximum losses and past performance records for high-risk public funds.
What Happened
Regulatory Update: The Financial Supervisory Service (FSS) is set to implement a new standard for fund risk disclosure starting on the 30th of next month. This initiative aims to improve transparency and protect investors following significant losses in overseas real estate funds and other high-risk products.
Scope of Application: The new rules apply to 10 types of public funds, including overseas real estate funds, REITs, and derivatives-linked funds that have historically caused investor losses. Additionally, high-risk structures such as leverage and inverse funds are now required to provide clear warnings regarding principal loss and specific investment risks.
Loss Disclosure Requirements: Leverage and inverse products must now explicitly state their projected maximum daily loss based on extreme market scenarios. This measure is designed to ensure that investors understand the potential impact of market volatility on their capital before committing to these complex financial instruments.
Enhanced Accountability: Asset management firms are also required to disclose any past instances where similar funds suffered losses exceeding 20%. By mandating the publication of specific loss details, the FSS intends to improve internal controls at management firms and ensure that investors are fully informed of the risks involved.