Lee Chan-jin, Governor of the Financial Supervisory Service, Calls for "Fundamental Improvements to Practices That Undermine Investor Confidence"

[Financial News] Lee Chan-jin, Governor of the Financial Supervisory Service, urged the chief executive officers (CEOs) of securities firms to correct business practices that disregard investor interests, including false and exaggerated advertising and passing hidden costs on to investors. He also called on them to strengthen shareholder returns and social responsibility.
On the 29th, Lee held a meeting with the CEOs of 23 securities firms at the Korea Financial Investment Association in Yeouido, Seoul, to discuss current issues facing the securities industry and its future direction.
Lee said, "The KOSPI Composite Index has recorded a notable gain of more than 60% from the beginning of this year, but most of the increase was driven by concentration in a small number of large-cap stocks, while market volatility expanded significantly." He assessed, "As a result, this has been a difficult period that most retail investors have had to endure."
He continued, "It is also true that criticism has emerged that while securities firms continue to enjoy profits, many of the investors who form the foundation of their existence have suffered only losses." He added, "A securities industry that fails to earn investors' trust cannot guarantee its future." The securities industry’s net profit for the first half of this year alone nearly matched its full-year performance from last year.
Regarding business practices, Lee emphasized, "Some practices that betray investor trust remain, including product designs that are out of step with investor expectations, false and exaggerated advertising, and passing hidden costs on to investors." He added, "We will concentrate our supervisory and inspection capabilities on thoroughly examining and holding accountable practices that undermine investor confidence, and fundamentally improve them." He continued, "I have seen firsthand that the level of investor protection varies markedly depending on the CEO's level of attention and resource allocation," and asked CEOs to take direct responsibility for investor protection.
On enhancing shareholder value, he said, "Although there have been some efforts in the securities industry recently to return value to shareholders, such as retiring treasury shares, they still appear to fall short of market expectations." He urged the firms, "Please set a benchmark for ordinary companies through shareholder returns, including dividends, and become a model for enhancing corporate value." Last year, the cash dividend payout ratios of KOSPI-listed comprehensive financial investment firms were 11.1% at Mirae Asset Securities, 27.1% at KIWOOM Securities, 35.5% at Samsung Securities, 47.3% at NH Investment & Securities, and 51.0% at Daishin Securities.
He also called on securities firms to strengthen their social responsibility in line with their size and role. Lee said, "The securities industry's performance was possible because investors were there," adding, "Now that those very investors are experiencing difficulties, the industry needs to reflect on what it can do." Last year, domestic securities firms' provisional spending on social contribution activities totaled 50 billion won, far below the 2.2 trillion won spent by domestic banks. Based on separate financial statements for the first half of this year, the combined net profit of 37 securities firms was 8.6 trillion won, compared with 13.8 trillion won at 20 banks.
Regarding margin lending, he said, "As margin lending became excessively concentrated in certain stocks, it was identified as one cause of market concentration and increased volatility." He asked firms to continue paying close attention to ensuring that resolutions to limit margin lending by individual stock and tighten limits relative to equity capital are observed in practice. Outstanding margin loans at securities firms rose from 15.8 trillion won at the end of 2024 to 27.3 trillion won at the end of last year, reaching a yearly high of 37.3 trillion won at the end of June this year. The balance fell to 33.3 trillion won at the end of August.
Lee also said, "As we have entered a period of rising interest rates, securities firms that rely heavily on short-term funding need to pay close attention to liquidity management, including funding mismatches." He asked them to prepare without disruption for the new adjusted liquidity ratio system scheduled to take effect next year. However, he added, "Please take a balanced approach so that sufficient funding can be supplied in a timely manner to areas that need it, such as risk capital and real estate."
The securities firm CEOs who attended the meeting said they would actively pursue shareholder returns and social contributions while taking direct responsibility for investor protection. Lee said, "I got the impression that overseas investors I met recently in London remain interested in and willing to invest in Korea's capital market." He urged them, "Please take the lead in developing the capital market and fostering a mature investment culture with the attitude that investors, companies, and securities firms should all grow together."
[email protected] Lee Jung-hwa Reporter