Quasi Investment Advisors And the “Leading Rooms” Problems - The Analysis and Suggestions for Improvements of Such a Unique Institution

A quasi-investment advisory business (QIAB) is a form of business wherein a practitioner transmits investment information to a large number of and unspecified paying customers via a periodical, publication, communication medium, or broadcasting medium. It is a type of financial license that can only be found in Korea. The biggest difference between a QIAB and an investment advisory business is that the former targets a large number of unspecified individuals and the latter offers a private and customized advisory service. “Leading rooms,” as a derivative of such an indigenous license system, are services through which investment advice on the types of stocks to be invested or the timing of buying and/or selling stocks is offered via telephone, instant message services, and/or social media. However, there have been reports about leading rooms operated by unlicensed individuals. In addition, crimes and other unlawful activities related to such services have become so prevalent that leading rooms have become recognized as a social issue. Regulatory authorities have made much effort to address these issues, and amendments have even been made to the related law. However, such attempts have been insufficient to effectively control the actual causes of the problems, as (i) QIABs remain free from many important regulations, (ii) retail investors lack insights to find illegitimacy among online advisory services, (iii) it is still a difficult task to prevent leading room-related crimes committed overseas, and (iv) a lack of preemptive measures prevents adequate investor protection. These problems would be effectively solved if (i) the restriction of the use of two-way communication went further than that of the recent amendment of the related law; (ii) QIABs became part of financial investment businesses, as prescribed in the law; and (iii) the registration duty replaced the reporting duty of QIAB practitioners. If QIABs are to remain a part of law, these measures should be the last resorts to deal with the imminent problem.