The Financial Supervisory Service (FSS) has issued a warning about potential consumer risks ahead of the launch of single-stock leverage exchange-traded funds (ETFs) next week. The FSS announced plans to enhance monitoring and internal controls related to these products.
On May 19, the FSS held its second Consumer Risk Response Council, chaired by Lee Chan-jin, to discuss recent risk factors affecting financial consumers and corresponding countermeasures.
The FSS identified the significant influx of retail investor funds into leverage ETFs during recent fluctuations in the domestic stock market as a major risk factor. With the launch of single-stock leverage ETFs scheduled for May 27, concerns have been raised about increased volatility due to concentration in specific stocks.
Market observers have noted a surge in trading of related leverage ETFs, particularly as retail investors have focused on large tech stocks like Samsung Electronics. The trading turnover of major leverage and inverse ETFs has been significantly higher than that of regular stocks.
During the council meeting, the FSS reviewed the negative compounding effects and the importance of rebalancing associated with leverage and inverse ETFs, as well as international examples. It was highlighted that even if short-term trends align, increased volatility could lead to long-term returns deviating from expectations.
In response, the FSS will closely monitor the operational status of leverage and inverse ETFs, including discrepancies and trading trends, and will distribute investor warnings while checking marketing practices in the industry.
The FSS also emphasized that investors in single-stock leverage and inverse ETFs must deposit a minimum of 10 million won and complete one hour each of basic and advanced training through the Financial Investment Association's education system. Financial companies have been instructed to clearly disclose the risks associated with 'single-stock' and 'leverage and inverse' products in their product names and advertising.
Warnings have also been issued regarding the competitive marketing of overseas stocks by securities firms. The FSS pointed out that some firms have aggressively promoted overseas stock events and advertisements without adequate consumer protection measures and prior impact analysis. The agency plans to expand consumer protection indicators in key performance indicators and strengthen internal controls and pre-monitoring related to events and advertisements.
Additionally, the FSS announced a firm response to illegal activities by financial influencers and similar investment advisory firms that exploit stock market volatility. The agency is currently using an AI-based monitoring system that operates 24/7 to detect unfair trading and illegal financial advertising in real time.
In light of growing concerns about consumer harm in the marketing of ETFs and overseas stocks, financial authorities are increasing scrutiny of advertising and sales practices. Under the FSS's initiative to improve ETF advertising regulations, the Financial Investment Association will begin continuous monitoring of YouTube ETF advertisements from major asset management firms starting in July. This move follows a surge in controversies over exaggerated and misleading advertisements centered around YouTube and financial influencers in the rapidly expanding ETF market.
Lee stated, "In a situation where stock market volatility persists, we will maintain a high level of vigilance against actions by financial companies that encourage excessive borrowing and leverage investments, as well as disruptions in the capital markets by certain financial influencers."
* This article has been translated by AI.
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