Kim Jae-seop, a lawmaker from the People Power Party, asked Lee Chan-jin, head of the Financial Supervisory Service and former member of the National Pension Fund Investment Committee, “Is it customary for the National Pension Service to postpone rebalancing right before the launch of a single-stock leveraged ETF (Exchange-Traded Fund)?” while probing the causal relationship between the National Pension Service’s measure to raise its target allocation for domestic stocks and the launch of the single-stock leveraged ETF.
At the National Audit of the Financial Supervisory Service by the Political Affairs Committee at the Seoul Yeouido National Assembly on the 19th, Rep. Kim asked, “In 2021, you were a member of the National Pension Fund Investment Committee. From that perspective, is it customary for the National Pension Service to have postponed rebalancing (before the launch of the single-stock leveraged ETF)?” and inquired what decision former Commissioner Lee would have made.
Rep. Kim pointed out, “At the time in 2021, Commissioner Lee stated, ‘How will we be held accountable for undermining principles when there is a lack of reasonable grounds?’ and said that the stock ratio should only be temporarily recognized within a range of 0.5 percentage points, while the target allocation should not be touched at all,” adding, “That was a very conservative and rational judgment, yet the National Pension Service postponed its stock ratio rebalancing for the first time in 10 years this year.”
In response, Commissioner Lee said, “I do not think it is appropriate for me to speak on whether it is customary or not as head of an institutional investor.”
According to a timeline document presented by Kim that day, the Financial Services Commission announced the launch of the single-stock leveraged ETF on January 28, just two days after the National Pension Service announced (on Jan. 26 this year) that it would postpone rebalancing its target allocation for domestic stocks until the end of June. Subsequently, the single-stock leveraged ETF was listed on May 27, and the National Pension Service decided to raise its target allocation from 14.9% to 20.8% on May 28, with the rebalancing postponement ending at the end of June.
Kim asked again, “As a member of the Financial Services Commission, is this situation not exceptional?” and “What would former Lee Chan-jin say about this?” to which Commissioner Lee replied, “It is difficult for me to speak from a personal standpoint.”
Citing Commissioner Lee’s declared “transition to a preventive consumer protection supervisory system,” Kim criticized, saying, “You stated that you would promptly issue consumer alerts when damage occurs, yet the alert related to (the single-stock leveraged ETF) came 30 days later,” and asked, “How do you evaluate the Financial Supervisory Service’s business plan released in February this year?”
In response, Commissioner Lee said, “My heart is heavy,” adding, “I have a very heavy heart about the outcome.”
Regarding Lee’s regret expressed at a press conference last June that he “should have stopped it even by lying down” concerning the single-stock leveraged ETF, Kim criticized, asking, “Why didn’t you lie down to stop it?”
Commissioner Lee apologized, stating, “The policy had already been announced and finalized,” and “My heart is heavy. I deeply regret this.” He then explained the intent behind his remarks at the time, saying, “Saying so at the press conference on June 22 was to send a strong message to sound an investor alert in a situation where significant damage to investors was anticipated.”
It was also pointed out that although past research reports commissioned by the Financial Supervisory Service contained warnings about the risks of single-stock leveraged ETFs, Vice Commissioner Hwang Sun-oh attended a Cheong Wa Dae meeting on January 13 last year without expressing any opposing opinion.
Lawmaker Choi Eun-seok from the People Power Party asked Vice Commissioner Hwang whether he had expressed an opposing opinion at the meeting at the time, to which Vice Commissioner Hwang replied, “I do not clearly remember if such remarks were made.”
Choi criticized, stating, “Looking at the research report that the Financial Supervisory Service had kept hidden, all the serious side effects of single-stock leveraged ETFs were foreseen,” and “Lee Chan-jin lies by saying he did not read a report funded by the Financial Supervisory Service budget, the Vice Commissioner attended the meeting without speaking despite knowing the content of that report, and he also cannot remember former Cheong Wa Dae Jeong Chaek (Head) Kim Yong-beom stating that they would push for the ETF.”
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