Margin financing surges W10tr in six months as regulator warns of household financial risks

Financial Supervisory Service Governor Lee Chan-jin has warned that households risk serious financial damage when they concentrate assets too heavily in a single asset class or take on leverage beyond what they can bear.

Lee chaired the third Consumer Risk Response Council on Monday and said "high volatility in the domestic stock market is persisting, deepening market distortions such as concentrated buying in specific stocks," the FSS said.

The Consumer Risk Response Council is the FSS's top-level consultative body, established to build a risk-based consumer protection supervisory framework. It has convened every two months since its inaugural meeting in March.

The council reviewed recent market conditions — including heightened stock market volatility, excessive debt-fueled investing and consumer harm risks from concentrated trading in specific stocks — and discussed response measures for each risk factor across the financial sector.

Lee urged financial firms to take a higher level of responsibility for consumer protection in such market conditions. He said they must "faithfully fulfill their role as risk managers of customer assets" by scrutinizing consumer risk factors more carefully when designing, manufacturing and selling new financial products.

The outstanding balance of margin financing — money borrowed from brokerages to buy shares on the Kospi and Kosdaq — stood at 37.3 trillion won ($24.4 billion) at the end of June, up 4.4 trillion won from 32.9 trillion won at the end of March, according to the FSS. Compared with the year-end balance of 27.3 trillion won, the figure has surged by 10 trillion won.

The council assessed that consumer harm from forced liquidations is a growing concern as debt-fueled investing spreads across the financial sector. The daily average value of forced liquidations tied to unsettled trades rose from 7.1 billion won at the end of last year to 26.2 billion won in March, and further expanded to 52.7 billion won in June.

Trading concentration in recently listed single-stock exchange-traded funds has also become pronounced, raising the possibility of further market volatility. Between May 27 and June 22, retail investors' turnover rate for single-stock leveraged products reached 105.3 percent, with a daily average trading value of 9.6 trillion won.

The council called on financial firms to thoroughly explain the structure and risks of leveraged investments to consumers and to ensure that sales practices do not in effect encourage debt-fueled investing. The FSS said it will continue monitoring investment risk disclosures for single-stock leveraged ETFs and their market impact, and will examine whether asset managers engage in excessive marketing if necessary.

The council also reviewed risks related to third-party insurance claim fraud, information theft and hacking incidents in the financial sector, illegal private lending and other predatory practices affecting livelihoods, interest rate reduction request rights, and mis-selling of financial products.

On third-party insurance risks and illegal private lending, Lee stressed that firms must "place consumer protection as the top priority and respond through close cooperation with relevant agencies." He also called on the industry to spare no effort in preventing financial crimes such as hacking — growing more sophisticated with advances in AI — and in safeguarding consumer rights.