Investment Funds 2026 Comparisons

Under the Financial Investment Services and Capital Markets Act of Korea, as amended (together with the regulations promulgated thereunder, the FSCMA), funds are divided into public funds and private funds. The distinction turns on the manner of offering:

• public funds (or retail funds) are those offered through a public offering (ie, solicitation of 50 or more prospective retail investors); and
• private funds are those offered on a private placement basis to a limited number of eligible investors (generally up to 100 investors excluding certain categories of professional investors).

The FSCMA does not recognise a separate fund category solely for vehicles that invest in “alternative” asset classes. In practice, however, Korean vehicles that pursue alternative investment strategies are overwhelmingly organised as private funds. Accordingly, in most legal and market contexts, the term “alternative investment fund” is assumed to refer to a private fund.

The FSCMA further divides private funds into two types.

• General Private Funds (GPFs) – privately offered funds that may be offered to all types of investors (subject to applicable eligibility rules).
• Institutional Investor-Only Private Funds (IPFs) – privately offered funds that are restricted to institutional investors and certain associated persons of the fund’s general partner (see 2.2.3 Restrictions on Investors for a discussion of IPF investor eligibility requirements). In market practice, such funds are commonly referred to as PEFs; however, for typological clarity, this chapter of the guide uses the term IPFs.

General Private Funds (GPFs)

Under the FSCMA, GPFs may take a variety of legal forms. The dominant industry preference has been to structure GPFs as investment trusts, although such funds may also be established in various corporate forms, most often as investment companies. Certain key features of the most common types of GPFs are discussed below.

Investment trust

A Korean investment trust is a contract-type collective investment vehicle established by a trust agreement between (i) an asset management company that holds a general private asset management business licence under the FSCMA (GPF AMC) and (ii) a trust company licensed under the FSCMA (the “GPF Trustee”). The trust agreement usually covers, among other things, material terms and conditions of the investment trust, including the investment strategy, management fee, distribution and redemption mechanics, and process for calculating net asset value (NAV).

Under an investment trust arrangement, the fund itself has no separate legal personality. The GPF Trustee holds legal title to the trust property and acts in its own name on behalf of the fund. Investors participate in such an investment trust by subscribing for trust units (represented by beneficial certificates), whereby they acquire indirect interests in the trust property as beneficiaries. Subscriptions for trust units are generally made at a price corresponding to the NAV per unit.

The GPF AMC generally is granted exclusive and discretionary authority over the investment activities and operations of the fund, subject to the investment objectives, strategy and restrictions set out in the trust agreement and the fund’s offering documents. The GPF Trustee holds legal title to all assets of the fund (including, for example, real estate, securities, cash and other instruments) in the name of the GPF Trustee on behalf of the fund. The GPF Trustee is required to safekeep the fund’s assets, segregating them from the GPF Trustee’s proprietary assets, and to implement the GPF AMC’s instructions regarding the purchase and disposition of portfolio assets. The trust division of a commercial bank often serves as the GPF Trustee.

The vast majority of GPFs in the market today are structured as Korean investment trusts. Reasons for this preference include:

• their clear separation between the GPF AMC and the GPF Trustee, enhancing asset protection for investors;
• the well-established regulatory and market framework for such funds in Korea; and
• in many cases, their relative cost efficiency and ability to be established quickly where standardised templates are used, avoiding formal entity formation and registration procedures that apply to other types of entities.

On the other hand, the absence of separate legal personality may complicate certain transactional arrangements (eg, on account of the fund contracting in the name of the GPF Trustee on behalf of the fund) or “know your client” screening procedures when such apply to the fund.

Investment company

A GPF can also be structured as a Korean joint stock company, governed by articles of incorporation (AOI), in which investors participate by subscribing for company shares at their NAV-based subscription price. Under this arrangement, the AOI prescribe the fund’s investment objectives, governance structure and operational rules. The GPF AMC is appointed as a director (or equivalent managing body) and is responsible for managing the GPF’s portfolio, subject to the AOI and the fund’s offering documents.

Although a GPF structured as such an investment company has separate legal personality and can act under its own name, the FSCMA requires appointment of a custodian to provide custody of the GPF’s assets. Such a GPF also must appoint an administrator to perform fund administration functions, including NAV calculations.

The benefits of structuring a GPF as a Korean investment company may include simplified contracting, asset holding and liability allocation (as compared with investment trusts) owing to the GPF’s separate legal personality and broad familiarity with the joint stock company structure and its corporate governance mechanisms among many domestic investors. On the other hand, more formal governance requirements and corporate law procedures (eg, shareholders’ meetings and director appointments) can result in higher administrative and compliance burdens and operating costs than under an investment trust structure.

Institutional Investor-Only Private Funds (IPFs)

Under the FSCMA, IPFs must take the form of a Korean investment limited partnership company, which despite being a corporate entity functions very similarly to limited partnership structures commonly used in other jurisdictions. Investors participate in an IPF by subscribing for (limited) partnership interests in the investment limited partnership company. An IPF must have at least one unlimited liability partner (who will typically act as general partner) and one limited liability partner.

As a limited partnership company, an IPF is governed by its AOI, which prescribe the IPF’s investment objectives, governance structure, capital commitments of each partner and other operational rules. The AOI of an IPF function similarly to a limited partnership agreement. Investors participate in an IPF as limited liability partners. The investment manager of the IPF, which must be registered as a “general partner” pursuant to the FSCMA (IPF GP), must participate in the IPF as an unlimited liability partner. Although not required by statute, it is becoming common practice for IPFs to engage custodians in response to investor requests.

IPFs are generally aligned with international practice for institutional alternative funds, benefiting from the clear separation of management and liability in accordance with standard limited partnership models and providing flow-through economics and flexibility in profit distribution and capital return mechanics.

As discussed in 2.1.1 Fund Structures, two of the most common private fund structures in Korea are GPFs organised as investment trusts and IPFs organised as investment limited partnership companies (for simplicity, references to GPFs in this section refer to GPFs structured as investment trusts). Please refer to 2.1.1 Fund Structures for an overview of key required documentation for the establishment of each such type of fund.

No prior regulatory approval is required to establish a GPF or IPF. However, a post-formation report must be filed with the Financial Supervisory Service of Korea (FSS) by the relevant GPF AMC (for GPFs) or IPF GP (for IPFs) within two weeks following the date of a fund’s establishment.

The timeline to launch an IPF is typically longer than that for a GPF, due in part to the difference in investor base. As funds available only to institutional investors, IPFs typically involve more tailored and protracted negotiations with investors on fund terms and related documentation. The internal processes and procedures of such investors (eg, in respect of due diligence requirements and investment committee determinations) can also lengthen the set-up process. In addition, establishment of an IPF requires a separate corporate incorporation procedure that involves court registration. Apart from structuring and negotiation processes, however, both GPFs and IPFs can be set up with relative speed and without any prior approvals from the regulators.

The level of set-up costs depends heavily on a variety of factors, including:

• complexity of the investment strategy;
• target size of the fund;
• number and type of investors;
• tax structuring considerations; and
• the involvement of other domestic and/or offshore vehicles.

Generally speaking, for a relatively simple GPF with standard fund documents and limited negotiations with investors, costs can be moderate by institutional standards. For IPFs, protracted negotiations with institutional investors and additional structuring expenses can see set-up costs escalate substantially. In most cases, service provider fees (eg, to trustees, custodians and administrators) are not substantial and the primary cost drivers are structuring, documentation and professional fees.

In both GPFs and IPFs, passive investors (excluding, for clarity, unlimited liability partners of an IPF such as the general partner) are not personally liable for any obligations of the fund and are responsible for losses only up to the amount they have invested. In other words, Korean private funds offer limited liability to their investors.

Unlike public funds, private funds are not obligated to submit to the FSS a securities registration statement (SRS), which is a publicly accessible disclosure document describing a fund’s terms and operations, nor are they subject to any other public disclosure obligations. Private funds are, however, still required to comply with certain disclosure and reporting obligations vis‑à‑vis their investors and the regulatory authorities, as briefly summarised below.

Required Disclosures to Retail Investors in GPFs

A GPF AMC must prepare and provide to the distributors of a GPF a key product description memo, which must include, among other things, a summary of the key terms of the GPF. This key product description memo must be provided to all prospective retail investors at the time of any offer or sale thereto of interests in the GPF. The GPF AMC must also, on an ongoing basis, provide all retail investors in a GPF quarterly asset management reports, which include, among other things, information on the base price of the GPF’s securities as of the end of each quarter and a summary of the GPF AMC’s asset management activities in respect of such GPF during the quarter. Neither the key product description memo nor any such quarterly asset management reports is publicly disclosed.

Regulatory Reporting Requirements – GPFs

For each GPF under its management, a GPF AMC must submit a quarterly report to the FSS that includes the following information:

• status of trading in derivatives and total risk exposure related thereto;
• status of guarantees or collateral provided with fund assets;
• status of borrowings; and
• status of fund assets.

If any item reported in a GPF’s post-formation report changes (subject to limited exceptions for certain changes deemed non-material), the GPF AMC must file an amendment report with the FSS within two weeks of the change.

Regulatory Reporting Requirements – IPFs

For each IPF under its management, an IPF GP must submit a report to the FSS: (i) on an annual basis, where the IPF’s net assets are less than KRW10 billion; and (ii) on a semi-annual basis, where the IPF’s net assets equal or exceed KRW10 billion. Each such report must include the following information:

• status of trading in derivatives and total risk exposure related thereto;
• status of guarantees or collateral provided with fund assets;
• status of borrowings; and
• status of fund assets.

If any item reported in an IPF’s post-formation report changes (subject to limited exceptions for certain changes deemed non-material), the IPF GP must file an amendment report with the FSS within two weeks of the change.

Ad Hoc Reporting Requirements – All Private Funds

For all private funds, the FSS must be notified within three business days of the occurrence of any of the following:

• the fund’s leverage ratio (as defined in 2.3.1 Regulatory Regime) exceeding 400%;
• any asset of the fund being designated as a “non-performing asset”;
• in the case of an open-ended fund, a decision being made to defer, suspend or resume redemptions; and
• in the case of a closed-ended (ie, non-redeemable) fund, a decision being made to extend the term of the fund or to reject a prescribed distribution at fund maturity.

As discussed in 1.1 State of the Market, interest in private funds among investors in Korea has been steadily increasing, and this trend is particularly notable not only among institutional investors such as pension funds and financial institutions but also among other professional and retail investors. Under the FSCMA, investors can broadly be classified into professional investors and non-professional (ie, retail) investors. Among professional investors, the FSCMA separately lists certain major institutions that are eligible to invest in IPFs. For more information on each category of investor, please refer to 2.2.3 Restrictions on Investors.

GPF AMCs are typically established as Korean joint stock companies. IPF GPs are most often established as either Korean joint stock companies or Korean limited liability companies.

Investor Eligibility Requirements for GPFs

The eligibility requirements are as follows.

• Certain professional investors – includes governments, listed corporations, financial institutions, unlisted corporations and individuals meeting certain financial thresholds.
• Other investors – includes investment funds, pension funds, public mutual aid organisations and non-professional investors with aggregate investments in a given GPF of:
1. KRW300 million or more, for a GPF with a leverage ratio less than 200%; or
2. KRW500 million or more, for a GPF with a leverage ratio of 200% or greater.

Investor Eligibility Requirements for IPFs

The eligibility requirements are as follows.

• Institutional investors, including financial institutions, mutual aid organisations, offshore corporations with aggregate commitments to the IPF in question of KRW10 billion or more, listed domestic companies with financial assets in excess of KRW10 billion, and unlisted domestic companies with financial assets in excess of KRW50 billion.
• Officers or investment personnel of the IPF GP with aggregate commitments to the IPF of KRW100 million or more.
• Other IPFs or GPFs, all the investors of which satisfy the eligibility requirements above.

The FSCMA is the primary statute governing the regulation of private funds in Korea. The private funds market in Korea is overseen by the Financial Services Commission of Korea (FSC) (Korea’s policy- and rule-making authority for the financial sector) and the FSS (the enforcement arm of the FSC that has primary responsibility for day-to-day supervision and regulation). The FSS’s functions include supervision, regulation and enforcement of the following:

• reporting requirements in respect of fund establishment;
• ongoing regular and ad hoc regulatory reporting;
• required public disclosures;
• reviewing and processing investment management and investment advisory licensing applications; and
• regulatory audits of financial institutions.

Investment Restrictions

Both types of private funds (ie, GPFs and IPFs) are permitted to invest in any type(s) of assets, for the most part free of statutorily prescribed investment restrictions. Private funds that invest in real estate located in Korea, however, are prohibited from (i) disposing of real estate assets within one year of their acquisition and (ii) disposing of vacant land before commencing the development project contemplated at the time such land was acquired.

While Korean law does not expressly prohibit private funds from investing in digital assets, the position of the local regulators has been that investment managers in Korea, and the private funds they manage, should not invest in digital currencies or digital currencies-related assets until currently pending legislation that seeks to establish a regulatory framework for the regulation of digital assets in Korea has been passed.

Leverage Ratio Restrictions

A private fund’s leverage ratio must be lower than 400%, where “leverage ratio” means the ratio of the sum of the following amounts over a private fund’s net assets:

• the total risk exposure related to derivatives transactions;
• the aggregate amount of guarantees and value of assets provided as collateral;
• the aggregate amount of outstanding borrowings; and
• the aggregate amount of REPO sales and short-sales.

Management Participation Investments

Under the FSCMA, if a private fund (individually or jointly with other private funds) makes an investment by way of either (i) acquiring 10% or more of the total number of outstanding voting shares in the target company or (ii) acquiring less than 10% of the total voting shares in the target company but having de facto control over the major business of such target (eg, via rights to appoint directors or officers of the target or on account of being the largest shareholder), such investment is categorised as a “management participation investment”.

When a private fund makes such a management participation investment, it must file a management participation report to the FSS within two weeks from the date of such investment. In addition, a private fund that has made a management participation investment is required by law to dispose of its voting shares in the relevant portfolio company within 15 years from the date of their acquisition.

Under the FSCMA, a service provider must obtain an applicable licence from the FSC before it can provide administration or custodial services to private funds in Korea. As only entities established in Korea are eligible to obtain such a licence, offshore service providers generally are not permitted to service domestic private funds. Please note that the concept of “director services” from third-party service providers is uncommon in Korea.

In order to provide investment management services to or act as the general partner of a private fund established in Korea, an investment manager must obtain the relevant licence from the FSS. Please refer to 2.1.1 Fund Structures for the relevant licensing requirements for GPF AMCs and the registration requirement applicable to IPF GPs. While a GPF AMC may delegate its investment management function to a third party, subject to certain reporting requirements and other restrictions, an IPF GP is strictly prohibited from doing so.

No prior regulatory approval is required to establish private funds in Korea.

There are no rules specifically concerning pre-marketing of local private funds in Korea, and the concept of pre-marketing is not an express regulatory exemption under the FSCMA.

The marketing and sale of private funds in Korea are regulated activities and must be performed by the licensed GPF AMC or IPF GP of the fund in question (as applicable) or through a distributor (ie, a domestic financial institution such as a bank or securities company) with the requisite local licence to market and sell the relevant fund products. The above applies equally to the marketing of local private funds and offshore private funds in Korea.

Please see 2.2.3 Restrictions on Investors.

There is no authorisation or notification procedure for the marketing of private funds established in Korea.

GPFs are typically marketed in Korea by local distributors. A distributor of a GPF is required to review the quarterly asset management reports of such GPF on an ongoing basis (for so long as an investor to whom such distributor marketed or sold interests in the GPF remains invested therein) to confirm that the fund is being managed in line with the terms of the key product description memo of the GPF provided to such distributor for the purpose of marketing the fund (eg, whether the investment purpose and strategy remains aligned with such marketing material). If a GPF’s distributor identifies a discrepancy between the key product description memo and a quarterly asset management report of the GPF, then the distributor must notify the GPF AMC thereof and request that it take corrective measures to resolve such discrepancy. If the GPF AMC fails to take appropriate measures to address the issue within three business days of receipt of the distributor’s notification and request, the distributor must notify the FSS and the GPF’s investors within three business days of the end of such cure period.

Please note that, in light of the very narrow pool of prospective investors for IPFs, in almost all cases any marketing for IPFs in Korea is typically handled by the IPF GPs directly rather than through a local distributor.

The Financial Consumer Protection Act of Korea, as amended (together with the regulations promulgated thereunder, the FCPA), which is the primary statute protecting the rights of investors in Korea, does not apply to investors in private funds. For a discussion of protections afforded under the FCPA to investors in retail funds, please refer to 3.3.10 Investor Protection Rules.

Regulators in Korea, including officials of the FSC (Asset Management Division) and the FSS (Asset Management Supervision Bureau), are considered fairly approachable. Regular contact with such officials is common, for example, in connection with licensing and registration procedures. While face-to face meetings were temporarily limited during the COVID-19 era, the regulators have resumed taking such meetings when warranted. The bulk of communications, however, tend to take place electronically or telephonically.

In South Korea, the investment trust is the most widely used structure for retail funds. It is a contract-type fund formed by a trust agreement between a Korean asset management company (AMC) and a trustee. The second most common retail fund structure is the investment company, a company-type fund. Other structures are seldom used. Investors’ interests are referred to as “units” in trust-type retail funds and “shares” in company-type retail funds.

While both structures have their advantages and disadvantages, in practice, investment trusts are generally favoured over investment companies for retail funds. As investment trusts are not corporate entities, they tend to be easier to establish and wind up. In addition, investment trusts are not subject to corporate governance rules and restrictions that apply to Korean corporates such as investment companies.

AMCs must be licensed by the FSC to manage Korean retail funds. Licensing requirements for retail fund AMCs include certain minimum capital, personnel and staffing (eg, fund management experts, compliance officer, risk management officer, etc), and facilities (including IT) requirements.

A retail fund structured as an investment trust is established by entry into a trust agreement between an AMC and a trustee. The AMC has discretion over the management and investment of the assets of the fund as well as authority to instruct the trustee as to how to act with respect to the assets of the fund. The trustee is the legal owner and fiduciary of the fund’s assets, responsible for the safekeeping of such assets as well as monitoring the management activities of the AMC.

To establish an investment company, the AMC as a promoter must prepare the retail fund’s articles of incorporation. A retail fund investment company also engages the AMC for fund management, a custodian for safekeeping of the fund’s assets, and an administrator for book-keeping and other administrative services.

In order to publicly offer units of an investment trust or shares of an investment company, both a fund registration application and an SRS must be filed and accepted by the FSS; this process can be completed with a single integrated filing. The SRS generally becomes effective 15 business days after the filing and its acceptance by the FSS.

Investors in retail funds are not personally liable for any obligations of the fund and are responsible for losses only up to the amount they have invested. In other words, Korean retail funds offer limited liability to their investors.

Securities Registration Statement (SRS)

The SRS must contain detailed information on the public offering and sale of a retail fund, including the following:

• fund information such as investment strategy, risk factors, redemption rights, fees and performance compensation;
• financials and management performance of the fund;
• related company information, including the financial status of the fund’s AMC; and
• other items for protecting investors (eg, information on investor rights, termination, required disclosures, and the fund’s transactions with related parties).

The final version of a fund’s SRS, as accepted by the FSS, is posted on the FSS website and available to the public.

Asset Management Reports

The AMC of a retail fund (or, where applicable, its local distributor) must provide all investors with asset management reports at least once every quarter.

Net Asset Value (NAV) Disclosure

A retail fund or its AMC must disclose the fund’s NAV on a daily basis.

For domestic retail funds, the NAV can be provided less regularly, up to every 15 days, if the fund either:

• invests more than 50% of its total assets in offshore assets;
• is a fund of funds that invests in private funds; or
• is a fund of funds that invests in real property or special assets.

In the case of offshore retail funds sold to investors in Korea, NAV can be provided less regularly, up to every 15 days, if the fund either:

• invests in offshore assets and it is difficult to calculate the NAV on a daily basis;
• is a closed-ended fund; or
• is not obligated to disclose the NAV on a daily basis according to the regulations of its country of domicile.

There is no regulatory restriction on who can invest in retail funds. All investors may subscribe, and a broad range of investors, from non-professional individual investors to major institutional investors, regularly participate in such funds.

Korean retail fund AMCs are typically established as Korean joint stock companies.

Please refer to 3.2.1 Types of Investors in Retail Funds.

Retail funds and managers in Korea are subject to investment restrictions mostly based on the type(s) of assets they invest in. Some of the major restrictions imposed on retail funds under the FSCMA are summarised below.

When investing in securities on behalf of one or more retail funds, an AMC is prohibited from:

• investing in excess of 10% of any fund’s total assets in a single type of a portfolio company’s securities;
• using the collective assets of one or more funds under its management to acquire in aggregate more than 20% of the total equity securities issued by the same company; and
• using the assets of any fund to acquire in excess of 10% of the total equity securities issued by the same company.

When a retail fund invests in derivatives:

• the total risk exposure of the fund’s derivative investments must not exceed its total net assets;
• the total default risk in relation to a derivative transaction with a single counterparty (ie, the maximum potential loss due to a single counterparty’s default) must not exceed 10% of the fund’s assets; and
• the total risk exposure due to price fluctuations of a single underlying asset in relation to the fund’s derivative investments must not exceed 10% of the fund’s assets.

The FSCMA also imposes various restrictions regarding investments by retail funds in other funds, including prohibitions on investing in excess of:

• 50% of the total assets of a fund in other funds that are managed by the same AMC; and
• 20% of the total assets of a fund in any single other fund.

Retail funds are prohibited from extending loans (other than call loans) or guarantees in favour of a third party.

Please refer to 2.3.2 Requirements for Non-Local Service Providers.

In order to manage a retail fund established in Korea, an offshore investment manager must obtain the relevant AMC licence from the FSS, as discussed in 3.1.1 Fund Structures.

As further discussed in 3.1.2 Common Process for Setting Up Investment Funds, the launch of a retail fund requires the filing of a fund registration application and SRS with, and acceptance of the same by, the FSS. Typically, the FSS conducts an “informal review” of the registration application, SRS and supporting documents before they can be formally filed. In connection with the informal review, the FSS officer in charge may raise questions or request additional documentation. In total, the full regulatory review process may take several months to complete, depending on a number of factors, including:

• workload of the case officer;
• complexity of the fund;
• quality of the initial application materials and SRS; and
• extent of required follow-up queries and additional document requests during the informal review stage.

A retail fund may not be offered before its registration application and SRS have been filed with and accepted by the FSS, and there is no express exemption under the FSCMA for pre-marketing. In practice, however, it is fairly common for managers to engage in low-profile discussions to gauge interest in potential fund products in the launch pipeline (eg, to help decide whether to proceed with preparation and filing of a fund registration application and SRS).

The marketing and sale of retail funds in Korea are regulated activities and must be performed through a distributor (ie, a domestic financial institution such as a bank or securities company) that is locally licensed to market and sell the relevant fund products. The above applies equally to the marketing of local retail funds and offshore retail funds in Korea.

A retail fund’s distributor must deliver a prospectus when soliciting potential investors for such fund and explain certain items, including regarding the following:

• key product features;
• investment risks;
• risk ratings; and
• fees.

In addition, the FCPA provides certain investor protection rules that apply to the marketing and solicitation of a retail fund. For further discussion of such rules, please see 3.3.10 Investor Protection Rules.

There are no restrictions on the types of investors in Korea to whom retail funds can be marketed.

Please refer to 3.1.2 Common Process for Setting Up Investment Funds.

Both retail funds registered and sold in Korea and their AMCs are subject to a number of ongoing requirements. Some of the key requirements are summarised below.

An amendment to the SRS must be filed upon the occurrence of any material change to the statements contained therein. Material changes that trigger an amendment filing include changes to the following:

• terms of issuance, including the offering and/or sale amount and the offering and/or sale period;
• underwriter (if any); and
• registration details.

If any such material change occurs (excluding, for avoidance of doubt, minor changes deemed not to infringe on the protection of investors), an amendment registration with relevant documents evidencing the changes (eg, a shareholders’ resolution, board of directors’ resolution or trust agreement) must be filed within two weeks of the change. When certain changes trigger both the SRS amendment and the registration amendment obligation, the registration amendment will be deemed to be filed when the SRS amendment is filed.

In connection with any SRS amendment, the retail fund’s prospectus must be amended or supplemented accordingly, and such amended prospectus or prospectus supplement must be submitted to the FSC on or before the effective date of the SRS amendment.

Offshore retail funds must submit an updated Korean prospectus to the FSC at least once per year while the fund is still registered to be offered in Korea, starting from the filing date of the initial Korean prospectus.

Additional reporting requirements for retail funds include, among other things:

• filing a securities issuance report (within one month from the end of each fiscal year of the fund);
• annual updates to the SRS; and
• risk rating updates.

For a discussion of ongoing disclosure requirements, please refer to 3.1.4 Disclosure Requirements.

The FCPA is the primary statute protecting the rights of investors in Korea, including retail fund investors. Among other things, the FCPA requires financial institutions, including distributors of retail funds, to comply with financial consumer protection measures in connection with their solicitation activities. These measures include the “Six Conduct Rules”, which cover:

• suitability;
• appropriateness;
• a duty to explain;
• prohibition of unfair sales;
• prohibition of improper solicitation; and
• regulations on advertising.

In addition, as discussed further in 3.1.4 Disclosure Requirements, investors in a retail fund receive detailed information about the fund through the disclosures mandated under the FSCMA, including the SRS and the fund’s prospectus. The FSCMA prohibits persons associated with preparing and/or filing the foregoing disclosures for a retail fund from making a false statement regarding a material fact to an investor or prospective investor in the fund, or omitting to state a material fact necessary for the statements made to an investor or prospective investor in such fund not to be misleading. A person who violates the prohibition may be liable for any damages suffered by the fund’s investors.

Please refer to the discussion in 2.3.11 Approach of the Regulator.