Watchdog chief calls for better consumer protection amid market volatility

Lead

South Korea's top financial regulator has urged asset managers and virtual asset exchange operators to bolster consumer protection and internal controls amid heightened market volatility, while separately cautioning retail investors against excessive leverage in a stock rally.

Lee Chan-jin, governor of the Financial Supervisory Service (FSS), delivered the warnings in a series of meetings with industry executives over the past two weeks, according to Yonhap News Agency.

Coverage Comparison

All three reports from Yonhap News Agency — the only outlet whose coverage was examined — center on Lee's remarks but focus on different segments of the financial industry. One report covers his meeting with asset managers, highlighting concerns about the rapid growth of the exchange-traded fund (ETF) market and the risks of new leveraged products. Another details his meeting with virtual asset exchange operators, where he called for stronger internal controls to restore market confidence. The third focuses on his warning to retail investors about the dangers of leveraged stock investments.

Key Claims

Asset Managers Urged to Protect Consumers

In a meeting with heads of major asset managers on July 13, Lee said their role and responsibilities are increasingly important in selling and managing ETFs as the market size nearly doubled this year. "Our capital market is facing increased risk factors such as explosive growth, extreme concentration, and increased market volatility," Lee said, as reported by Yonhap.

Lee cited sharp growth in the local ETF market, noting its net asset value spiked to 507.4 trillion won (US$338 billion) as of end-May, from 297.1 trillion won at the end of last year. He urged asset managers to refrain from hurting fair competition in selling their products to consumers.

Concerns Over Single-Stock Leveraged ETFs

The FSS chief has been expressing concerns over the newly introduced single-stock leveraged ETFs, saying the products have been generating many side effects, and his agency is drawing up measures to better safeguard investors, according to Yonhap.

Lee earlier said the overheated rush to single-stock leveraged ETFs with underlying assets — Samsung Electronics and SK hynix — have shown extreme turnover since their introduction in late May, and that the agency is reviewing measures to buffer potential adverse impacts on investors.

Warning on Leveraged Stock Investments

On July 7, Lee warned that excessive leveraged stock investments could undermine the financial health of households. At a meeting with officials on the protection of financial consumers, he said household financial health could be severely undermined "if household financial assets are excessively concentrated in certain assets or invested using leverage beyond tolerable levels," as quoted by Yonhap.

Lee called for the financial sector to step up its role of risk management and take preemptive measures if necessary. The benchmark Korea Composite Stock Price Index (KOSPI) has surged so far this year, thanks to a global spending boom on artificial intelligence data centers, but its volatility has also grown.

Between May 27 and June 22, retail investors bought a net 8.9 trillion won (US$5.8 billion) worth of leveraged exchange-traded funds tracking single heavyweight stocks, according to industry data cited by Yonhap.

Virtual Asset Market Internal Controls

In a meeting with the heads of Dunamu, Coinone and 13 other virtual asset exchange operators, Lee said the domestic virtual asset market has been in a slump in the first half of the year due to a series of accidents. "In order to regain market confidence and shift toward an established market, operators need to strengthen their internal control," Lee stressed, as reported by Yonhap.

He also said virtual market operators need to enhance their monitoring systems and information technology (IT) infrastructure to detect distortions and boost market fairness, and thus better protect customers.

Perspectives

Financial Supervisory Service (FSS)

The FSS, through Governor Lee Chan-jin, expresses concern over market volatility and the potential risks to investors from leveraged products. The regulator urges industry participants to strengthen internal controls, improve consumer protection, and take preemptive risk management measures. The FSS is also reviewing measures to mitigate adverse impacts of single-stock leveraged ETFs.

Asset Managers and Virtual Asset Operators

While not directly quoted in the reports, the meetings with asset managers and virtual asset exchange operators imply their role in implementing the regulator's calls for stronger internal controls, better consumer protection, and fair competition. Their cooperation is implicitly sought to restore market confidence and ensure market stability.