FSS to monitor 'debt-fueled investing' as margin financing surges to 38 trillion won

The Financial Supervisory Service said it will conduct ongoing monitoring of leveraged investment indicators and intensively review risk management systems at financial firms, in response to a rapid surge in debt-fueled stock buying that has accompanied the recent stock market rally.

The FSS said the move is intended to get ahead of potential investor losses and financial market instability, as leveraged investment has expanded quickly — with the margin financing balance climbing to 38 trillion won ($24.6 billion).

The FSS announced Friday that it held its third Financial Consumer Protection Advisory Committee meeting Thursday, chaired by FSS Governor Lee Chan-jin, to discuss six agenda items directly related to financial consumer protection. These included recent trends in debt-fueled stock buying and countermeasures, strengthening financial investment education in capital markets, addressing disorderly conduct by general insurance agencies, and tightening payment risk management at payment gateway operators.

According to the FSS, the margin financing balance stood at 38 trillion won as of the end of May, up 10.7 trillion won from 27.3 trillion won at the end of last year. Securities-backed loans also rose to 26.3 trillion won, while trading in exchange-traded funds and index futures and options also increased.

Margin financing grew by 2.3 trillion won in a single month from 35.7 trillion won at the end of April, and securities-backed loans rose by 1 trillion won over the same period. The average daily trading volume of leveraged ETFs by retail investors increased by 1.3 trillion won in May from the previous month, and the average daily trading volume of KOSPI 200 index futures and options by retail investors expanded by 3 trillion won from the previous month to 12.1 trillion won.

However, the FSS said that despite the increase in margin financing and securities-backed loan balances, their share relative to market capitalization and investor deposits has remained broadly stable compared with historical levels.

Going forward, the FSS plans to conduct ongoing checks on leveraged investment indicators — including margin financing, securities-backed loans and leveraged ETFs — and to continuously inform investors of the risks of excessive leverage. Where necessary, it will also review the risk management operations of financial firms, focusing on sectors where risk is growing, to preemptively curb the spread of excessive leveraged investing.

In addition, the FSS will strengthen life-cycle financial investment education in light of the growing investment risks facing retail investors. School-based financial education and hands-on programs will be expanded for children and teenagers, while tailored financial counseling will be provided for young adults — including military personnel and youth aging out of the foster care system. Age-appropriate financial education programs for senior citizens are also planned.

The committee also decided to pursue an expansion of prohibited concurrent business activities, tougher sanctions, and a restructuring of insurance solicitation commissions to root out unsound sales practices by general insurance agencies. It also discussed institutionalizing obligations for major payment gateway operators to manage payment risks at smaller sub-operators, in order to improve stability in the online payments market.

The FSS said it plans to "actively reflect the committee's advisory opinions in its supervisory and inspection work and in the process of institutional reform, so as to continuously address structural and habitual factors that undermine consumer trust and to strengthen a proactive financial consumer protection framework."