▲ Financial Supervisory Service
Starting next year, securities firms will be prohibited from holding promotional events that link benefits to trading volume or target high-risk financial investment products to lure investors.
The Financial Supervisory Service announced today (October 28) that it will strengthen the standards for providing economic benefits through amendments to the Korea Financial Investment Association regulations.
Under the regulations on the financial investment business, securities firms are prohibited from providing economic benefits that go beyond what the general public would typically consider reasonable.
Specific limits and internal controls have been left to self-regulation.
However, as competition within the securities industry intensified, event competition overheated, with firms offering expensive prizes such as "100 shares of overseas stock" or cars.
In response, financial authorities have decided to fundamentally ban the provision of economic benefits linked to the number of trades or trading volume, which carry a high potential for conflicts of interest between securities firms and investors.
As an investor's trading volume increases, the brokerage revenue of securities firms also rises.
Consequently, concerns have been raised that events linking the two encourage short-term and unnecessary excessive trading, increasing investor burdens and the possibility of losses, while also expanding market volatility.
In fact, one securities firm held an event offering up to 5 million won per day for meeting trading volume targets involving domestic exchange-traded funds (ETFs) and exchange-traded notes (ETNs).
As a result, two individual investors traded 3.4 trillion won and 1.7 trillion won in ETFs, respectively, receiving 340 million won and 170 million won in event prize money, while the securities firm was estimated to have earned about 51.4 billion won in brokerage commissions.
Events targeting high-risk products will also be banned regardless of their content or format.
Previously, there were no separate regulations regarding events for products requiring a high level of investor protection, such as leveraged products, investor credit extensions (debt-financed investing), and overseas investments.
As a result, investors were exposed to the risk of principal loss, debtor repayment risks, and exchange rate fluctuation risks.
The Financial Supervisory Service stated, "We expect to prevent investor damage and market confusion by institutionally banning events that induce short-term, excessive trading and high-risk investments."
However, securities firms' own fee and interest discounts or events unrelated to trading volume will continue to be permitted as before to help lower investors' trading cost burdens.
The Financial Supervisory Service plans to complete the regulatory amendments within this year after pre-announcing the amendment to the Korea Financial Investment Association regulations and gathering opinions this month.
The amended regulations will take effect on January 1 of next year.
(Photo: Yonhap News)
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