As financial authorities moved to check risks amid an overheated surge in individual investors' "debt-fueled investing," or "bit-too," alongside the recent rise in the domestic stock market, they judged that investor losses could grow if market volatility expands, given the increasing transactions of high-risk products such as leveraged exchange-traded funds (ETFs) and index futures and options.
The Financial Supervisory Service said on the 28th that it held the third Financial Consumer Protection Advisory Committee meeting, chaired by Lee Chan-jin, governor of the Financial Supervisory Service, on the 25th and discussed recent trends and response plans related to buying stocks with borrowed funds. The advisory committee is the top consumer protection advisory body under the direct control of the governor, tasked with reviewing financial supervision and inspection issues and system improvements from a consumer perspective.
According to the Financial Supervisory Service (FSS), as of the end of May, the outstanding balance of credit loans in the financial sector was 38 trillion won, up 10.7 trillion won from the end of last year (27.3 trillion won). Securities collateral loans also stood at 26.3 trillion won.
The Financial Supervisory Service (FSS) explained that as the stock market rises, the proportion of investors not only borrowing directly but also using high-risk leveraged products is increasing, so it checked the situation and discussed response measures. With leveraged ETFs and index futures and options transactions on the rise, investor losses could quickly mount if stock prices plunge or volatility grows. For financial companies, the burden on soundness also increases due to more forced liquidations and falling collateral values.
The Financial Supervisory Service (FSS) decided to continuously monitor indicators related to borrowing for investment. It will keep checking key indicators such as credit loans, securities collateral loans, and leveraged product transactions, and plans to guide investors on the risks of excessive leverage investing. It will also look into whether financial companies' management systems are functioning properly, focusing on institutional sectors where risks are expanding.
The advisory committee decided to strengthen financial education in the capital markets and financial investment fields. As individual participation in the capital market expands and more single-stock leveraged products with high loss risk appear, the aim is to expand life cycle-based financial investment education so consumers can fully understand product structures and risks before investing.
The Financial Supervisory Service (FSS) decided to strengthen tailored financial education that reflects the characteristics of each age group, including children and adolescents, young adults, and seniors. To vitalize school financial education, it will produce an online teacher training program and expand hands-on investment education programs. For young adults, it will offer one-on-one financial counseling to service members and young people preparing for independence, and it plans to enhance practical finance courses at universities with financial investment content.
In terms of establishing financial order, responses to unsound sales practices by corporate insurance agencies (GAs; General Agency) were also discussed. The Financial Supervisory Service (FSS) will strengthen market discipline and sanctions so that GAs bear responsibilities commensurate with their authority as sales channels, and it will also pursue improvements to compensation schemes to ease excessive, commission-centered competition.
The Financial Supervisory Service (FSS) plans to reflect the views from this advisory committee in future supervision and inspection work and in the process of improving systems. An FSS official said, "We will continue to identify and improve structural and customary factors that undermine consumer trust and strengthen a preventive consumer protection framework."