The Financial Supervisory Service (FSS) will conduct on-site inspections of major banks to verify the appropriateness of commission charges and sales processes for exchange-traded fund (ETF) trust products.
According to the financial sector on July 31, the FSS plans to examine the ETF trust sales practices of KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, and SC First Bank in August. The inspection will focus on whether banks provided adequate guidance on commission structures that align with customers' investment periods and trading tendencies, as well as whether they sufficiently explained the cost burdens involved.
From January 2022 to May 2023, the sales volume of ETF trusts at six major banks reached 64 trillion won, with 1.03 million contracts. In May alone, the sales volume was 10.8 trillion won, an 8.8-fold increase compared to December of the previous year.
The average holding period for ETFs was 42 days, with the same customers entering into contracts an average of 5.5 times. Notably, 94.6% of all transactions were sold within six months, yet 91.7% of contracts were subject to upfront commissions that are disadvantageous for short-term investors. Upfront commissions charge about 1% of the investment amount at the time of entry, making them more favorable than deferred commissions only if the investment period exceeds one year.
Low target return rates were also identified as a factor contributing to frequent trading. Accounts with target returns below 5% accounted for 58.1%, while those below 3% made up 20.8%.
During the same period, customer capital gains from sales totaled 2.91 trillion won, while banks collected 394.8 billion won in trust commissions. The FSS estimates that the combination of upfront commissions and low target returns resulted in banks receiving 7.2 times more in commissions than what would be appropriate for their customers.
* This article has been translated by AI.
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