Meritz Securities PF fee refund battle… Market “A case of interest adjustment amid PF recession”

Legal battle underway over PF loan advisory fees in 2019
Legal world: “Refund claims for securities companies’ share of the advisory area are mostly not valid”
The revenue impact is limited… Internal control and contingent liability management are challenges

VC Babylon, a development company, is pursuing a lawsuit to claim the return of unfair profits over the financial advisory fees it received in the course of a real estate project financing (PF) loan executed by Meritz Securities in 2019. Currently, all of Meritz Securities' financial and internal control risks are concentrated on domestic real estate PF. However, the securities industry and the legal community say that the direct impact of this lawsuit on Meritz Securities' PF business as a whole is likely to be limited.

The superficial issue of this lawsuit is the financial advisory fee set during the PF loan process. However, the market seems to interpret this not as a simple individual dispute, but as an extension of the process of adjusting interests between developers and financial companies after the PF market slump. Accordingly, the key issues of this case were summarized in 5 questions and 5 answers.

◆ How do the securities industry and legal circles view the core of this lawsuit?

The industry does not view this lawsuit simply as an individual dispute between Meritz Securities and the developer. Recently, as the PF market has passed the past boom phase and entered a recession and adjustment phase, there is a continuing movement to look again at the past contract structure and fee system. In a situation where business conditions have worsened, developers are moving to readjust the cost burden, while the financial sector is fighting back by maintaining that the fees are legally collected under the contract.

Regarding this atmosphere, Mr. A, a securities industry official, said, “As the PF market is currently experiencing a recession compared to the past, it appears that the developer is making various attempts to improve the situation. However, if there are no problems in the contract process and it is clear that the developer has agreed to this, it will not be easy to claim a refund for the fee payment.”

Whether or not the developer agrees is a key issue in related lawsuits. In the legal world, there is also an analysis that there are many cases in which securities companies are in favor of recent lawsuits claiming the return of unjust enrichment for financial advisory fees in PF loans. The legal world explains that this is because in many related PF loan contracts, the fact that the developer expressed consent to the details is confirmed in the contract.

Kim Kwang-deok, general counsel at Daeryun Law Firm, explained, “Financial advisory is a securities company’s own specialized work within a PF contract, and the rate is set based on agreement with the developer before contract execution and construction commencement.” He added, “The financial advisory fee rate is established on the premise of obtaining the developer’s consent to the securities company’s professional judgment, and this becomes effective through signing the contract.”

◆ How is the PF financial advisory fee rate setting process structured?

To understand this issue, it is necessary to first look at the structure in which the PF financial advisory fee is determined. In the industry, it is explained that the PF loan advisory fee rate is often determined by taking into account the risk level of the business, difficulty in raising funds, market conditions, and the scope of the role of the financial company. Ultimately, the commission rate is a reflection of business risk rather than a simple cost item.

Mr. B, an official in the securities industry, said, “The decision to set the commission rate for PF loans is made by analyzing the business location and structure of the contract loan and presenting the results reflected as the commission rate to the developer to obtain consent.”

◆ How much impact will this lawsuit have on the profit structure of Meritz Securities’ PF business?

The views across the industry are relatively consistent. The likelihood that this lawsuit will immediately bring about significant changes to Meritz Securities' overall PF business strategy is limited. If it is determined that there are no problems with the commission rate setting and contract procedures in this trial, it is unlikely that Meritz Securities' existing PF business structure will be significantly shaken. There are voices in the industry that the frequency of these types of lawsuits will gradually decrease in line with the trend of reducing non-performing loans in the PF market this year.

Of course, some burden may arise depending on the results of individual cases, but the industry does not view this as a variable that can shake the PF profit structure. Rather, the interpretation of this lawsuit is that it is a dispute resolution process that occurs as the recession in the PF market enters a state of mediation.

Mr. C, a securities industry official, said, “The frequency of related lawsuits is expected to decrease in the PF market in 2026,” and added, “This is due to the Financial Services Commission and the Financial Supervisory Service’s focus on strengthening the soundness of the PF market rather than the risks of individual securities companies. This is because expectations are growing for a reduction in the non-performing loan market.”

He added, “Such a lawsuit is a case of adjustment that occurs when the PF market transitions from a boom phase to a recession phase in the past, and if the market had maintained a boom, it is highly likely that the issue would not have been raised.”

◆ What should the market look at together?

Aside from the lawsuit, what the market is paying more attention to is Meritz Securities' PF internal control and contingent liability management. In October 2019, Meritz Securities was subject to sanctions in 2025 after being found to have insufficient internal controls in the process of performing PF financial advisory and arrangement services related to the Daegu residential-commercial complex new construction project. At the time, the Financial Supervisory Service issued a reprimand based on Article 54 of the Capital Markets Act regarding the PF team leader's alleged use of undisclosed information.

Currently, Meritz Securities is focusing on lowering its real estate PF exposure by announcing a reduction plan to manage the increase in contingent liabilities such as PF.

Korea Ratings said in a Meritz Securities report on the 10th that “most of our contingent liabilities are concentrated in domestic real estate PF,” but also assessed, “However, considering the high proportion in Seoul and the metropolitan area and the collateral recognition ratio (LTV), there is a high possibility of reduction.”

It is interpreted that the challenges facing Meritz Securities in its real estate PF business will be financial soundness and internal control capabilities, not legal risks. Separately from this lawsuit, the need for Meritz Securities to conduct a self-examination of its overall PF business structure and contract structure is being emphasized.

◆ What should we look forward to in the future?

The symbolic meaning of similar disputes may vary depending on how the court organizes its judgment on the securities company's commission rate setting and developer's consent structure in this lawsuit.

In the PF market, it is assessed that a significant number of businesses in the metropolitan area have entered the liquidation stage, but in regional areas, there are still unsold and unorganized businesses, so it is expected that it will take some time to completely resolve the possibility of disputes.

The Financial Services Commission urged the industry to actively participate, saying that the size of domestic PF exposure at the end of 2025 had decreased from KRW 191 trillion in the first quarter to KRW 178 trillion in the third quarter, and that new PF is also being supplied mainly to businesses with good business viability. The securities industry explained that if the PF market remains stable in 2026, similar lawsuits are likely to decrease.

However, as securities firms cannot be free from the commission rate setting process and internal control in the process of pursuing profits in the shrinking PF market, it is expected that it will be difficult to be excluded from the authorities' related inspections.

In the end, the core of this Meritz Securities PF financial advisory fee refund lawsuit focuses on how the interests between developers and securities companies are being readjusted in the stagnant PF market, rather than the win or loss of individual cases. The industry believes that the impact of this lawsuit on Meritz Securities' PF business profit structure is limited, but maintains the view that internal control and contingent liability management capabilities need to be separately inspected.

In this lawsuit, the factors to pay attention to are condensed into three. These are the direction of the court's judgment, the speed of recovery of the PF market, and the authorities' PF market management stance. For this reason, the enforcement and securities industries are paying keen attention to the outcome of future trials.

NSP News Reporter Lim Seong-su (forest@nspna.com)

[View full article]
Meritz Securities PF fee refund battle... Market “A case of interest adjustment amid PF recession” (Shortcut)