The Financial Supervisory Service (FSS) has ordered the financial investment sector to implement thorough management and oversight, warning that the spread of debt-financed investing across the financial industry could lead to investor losses in the event of sudden stock market volatility.

FSS Governor Lee Chan-jin emphasized this point yesterday (July 6) while presiding over the 3rd Consumer Risk Response Council at the FSS headquarters in Yeouido, Seoul, where he assessed stock market conditions and the state of consumer protection across the financial sector.

"When household financial assets are overly concentrated in specific asset classes or when investments are made using leverage beyond one's capacity, it not only exposes investors to high loss risks but can also severely damage the financial health of households," Lee said.

He continued, "In such market conditions, financial firms must also take a higher level of responsibility regarding consumer protection. They should act as diligent risk managers for client assets by more closely examining potential risk factors for consumers when designing, manufacturing, and selling new financial products."

"The FSS will also unwaveringly fulfill its core duties, including swift and strict crackdowns on market-disturbing activities," he added.

The FSS particularly noted that debt-financed investing is spreading widely across the financial sector.

This is because increased stock market volatility could exacerbate consumer losses through forced liquidations.

The daily average amount of forced liquidations related to margin trading increased from 26.2 billion won in March to 52.7 billion won last month.

Despite the trend of tightening household debt, the balance of credit loans for stock purchases rose from 32.9 trillion won at the end of March to 37.3 trillion won as of the end of last month.

Individual investors net-purchased 8.9 trillion won worth of single-stock leveraged ETF products between May 27 and June 22.

During this period, the turnover rate was 105.3%, and the daily average trading value was 9.6 trillion won.

The FSS urged financial firms to faithfully explain the structure and risks of leveraged investments to consumers and to ensure thorough management and oversight to prevent business practices that effectively encourage debt-financed investing.

Regarding single-stock leveraged products, the FSS decided to continue monitoring market impact and, if necessary, to inspect whether asset management companies are engaging in excessive marketing.

At the meeting, it was announced that the FSS had immediately launched an inspection and conducted internal reviews at securities firms following a recent incident where investor funds were illegally withdrawn due to hacking.

In the case, where investor funds were withdrawn after the email of a domestic securities firm employee—who serves as a standing agent for overseas investors—was hacked, the FSS shared the identified internal control vulnerabilities with the industry last month and took measures to strengthen internal controls.

Furthermore, regarding recent financial accidents involving unauthorized credit card payments, such as the unauthorized subscription to ChatGPT paid memberships without consumer consent, the FSS decided to operate a "Card Fraud Prevention Task Force" involving the FSS, credit card companies, and the Credit Finance Association to facilitate swift detection of disputes and prevention of damages.

In addition, the FSS will implement guidelines for managing third-party risks, where providers of medical and legal services related to insurance claims induce consumers to overuse insurance for their own profit.

The FSS also decided to include cases where loan companies illegally use debtors' vehicles as collateral to charge high interest rates in joint crackdowns conducted with local government special judicial police forces.