Lee Chan-jin: "Review of Securities Firms' Loans Secured by Sale Proceeds" ... High Rates and Automatic Lending Under Scrutiny

[Financial News] Lee Chan-jin, Governor of the Financial Supervisory Service, said he plans to review securities firms’ interest-rate calculation systems for loans secured by sale proceeds and how their automatic lending services operate. The move follows lawmakers’ call to check whether high rates are being charged on short-term loans with low repayment risk, and whether investors are adequately informed about the loans and the interest they incur when using automatic lending services.
At the Financial Supervisory Service’s parliamentary audit before the National Policy Committee on the 19th, Lee responded to a question on the matter from Rep. Park Hong-bae of the Democratic Party of Korea, saying, "I learned about it recently while preparing for the parliamentary audit (specifically, the details)." He added, "Some fairly serious problems have been identified, so I plan to look into them."
A loan secured by sale proceeds is a product that allows investors to borrow money from a securities firm using as collateral proceeds from shares they have sold but have not yet received. Domestic stocks settle on a T+2 basis, meaning payment is made two business days after the trade date, so investors cannot withdraw the proceeds as cash immediately after selling shares. The loan lets them use the funds before settlement, and is automatically repaid once the sale proceeds are credited.
According to Rep. Park, the amount handled by the automatic services for loans secured by sale proceeds at three firms, including Kiwoom Securities, Mirae Asset Securities and KB Securities, exceeded 63 trillion won from January to August this year. Kiwoom Securities alone handled more than 58 trillion won. Citing the fact that the firms had stopped accepting new applications or discontinued the services after lawmakers and the media raised concerns, Park said, "If they were charging interest in the 9% range on loans that could have been offered at rates in the 5% range, shouldn't we conclude that there was a problem with how the loan rates were calculated?"
Lee replied, "I agree with some of the points raised."
He went on to say, "I have serious doubts about whether investors were aware, each time an unpaid balance arose, that they were taking out a loan and would have to pay interest," and stressed the need to check whether consumer-protection procedures had been properly followed.
[email protected] Lee Jeong-hwa Reporter