The Financial Supervisory Service (FSS) will strengthen fundamental investor protection mechanisms to prevent excessive growth of leveraged investments using credit financing and margin transactions. The move aims to curb losses for individual investors who borrowed money to invest during sharp market fluctuations by revising regulations related to margin trading and forced liquidation.
The FSS held a national reporting event on consumer protection achievements in the afternoon of the 17th, outlining future financial consumer protection initiatives. While the past year focused on building consumer protection organizations and preventive supervision systems, the agency now plans to concentrate its supervisory efforts on ensuring these regulations function effectively in actual financial markets.
In particular, the capital market will focus on reducing the scale of leveraged investments and mitigating associated loss risks. In a pre-briefing session that day, Lee Se-hoon, Senior Deputy Chairman of the FSS, stated, "Leveraged investing (using debt as leverage) in Korea's capital market has increased significantly recently," adding, "We are approaching this issue with the goal of reducing excessive leveraged investments."
The FSS is in final negotiations with the Financial Services Commission on detailed measures. Proposed actions include restricting margin trading for minors, requiring additional verification documents from elderly investors, and providing simulation tools to allow investors to pre-check conditions that could trigger forced liquidation and estimated loss ranges. The agency also plans to improve the prior notice procedure for forced liquidations.
Regarding single-stock leveraged products, Senior Deputy Chairman Lee stated, "After previously supplementing the scope of recognized initial margin requirements, trading volumes have decreased and volatility has eased somewhat," noting that the FSS is closely monitoring market conditions.
Consumer protection against risks stemming from AI expansion has emerged as a new challenge. As financial companies rapidly adopt AI for counseling and product recommendations, potential new risks such as unclear disclosure obligations and liability attribution are increasing. The FSS plans to apply an AI risk management framework developed based on international discussions to actual cases and continuously improve it whenever issues are identified.
Senior Deputy Chairman Lee remarked, "There are currently few concrete real-world cases demonstrating AI risks, so guidelines remain underutilized in practice," adding, "Given the rapid pace of AI growth, risk factors are expected to become visible soon. We will test existing frameworks and response systems while continuously updating them."
The FSS is also expanding AI utilization within its own supervisory operations. Applications now extend beyond detecting voice phishing and unfair virtual asset trading to include classification of complaints and disputes, as well as preliminary analysis of data submitted by financial institutions. An AI-powered comprehensive portal for handling complaints and disputes is scheduled to launch in January next year to accelerate processing of increasing financial complaints and conflicts.
In the banking sector, consumer protection will be strengthened during ETF trust sales. The FSS plans to form a task force (TF) with industry groups and associations to improve fee structures, performance evaluation (KPIs), and internal sales procedures for ETF trust products. Key inspection targets include inadequate explanations of trust fees, trading delays, surrender charges, and lost opportunities for additional returns due to automatic liquidations.
Senior Deputy Chairman Lee stated, "We are closely examining whether the concentration on front-loaded fees resulted from consumers' voluntary choices or if they fully understood and selected these products," adding, "We are also checking whether financial institutions intentionally solicited transactions to maximize profits, leading to shortened trading periods due to accelerated profit realization." The FSS plans to compile inspection results and publicly disclose any identified issues.
In the insurance sector, the FSS will implement comprehensive supervision measures to prevent illegal lending activities by insurance agencies (GAs) or illegal insurance sales disguised as consulting. Proposed measures include requiring GAs to explicitly state their status as insurance agencies in their names and restricting irregular operations that leverage free consultations.
Lee Chan-jin, Chairman of the FSS, stated, "Complaints and disputes received by the FSS continue to rise, and practices prioritizing short-term results over consumers' best interests and long-term trust persist in financial markets." He added, "We need to continuously improve consumer protection laws through future legislative efforts and will cooperate closely with the Financial Services Commission."
in FINANCE
