Financial Services Commission Reiterates Stance on Leveraged Stock Investment Controversy: "Strict Risk Management Is Essential"

Further Clarification on Leveraged Investment Controversy by Chairman and Vice Chairman
"Strict Risk Management Essential for Leveraged Stock Investment"

The Financial Services Commission recently emphasized that "strict risk management must accompany 'stock investment with borrowed money' (investing with loans)" in light of the recent surge in leveraged stock investments and the increase in unsecured loans.

On November 17, the Commission distributed a press reference material, stating that unsecured loans are being managed stably. This statement appears to be an effort to address the controversy that arose after Vice Chairman Kwon Dae-young commented that "leveraged stock investment is a form of leverage," and Chairman Lee Eogwon said at a press conference that the increase in unsecured loans does not pose a threat to financial soundness.

Vice Chairman Kwon later clarified that his remarks had been misunderstood and explained that he was not encouraging leveraged stock investment. Chairman Lee also emphasized at the press conference the importance of risk management in leveraged investing, but controversy arose when he said that the recent increase in unsecured loans "does not drive household debt growth or pose a threat to financial soundness."

In response, the Financial Services Commission stated, "It is our consistent position that strict risk management must accompany leveraged stock investment, and investors must operate within their risk tolerance." The Commission also explained that, in response to the sharp increase in credit transaction loan balances-a representative indicator of leveraged investing-risks are being closely managed through measures such as total volume limits by securities firms, restrictions on deposit and collateral ratios, and differentiated limits by customer and stock.

The Commission further stressed that the recent increase in unsecured loans is partly due to seasonal factors, and that, as of October this year, the cumulative amount has decreased by 2 trillion won, indicating that it is being managed stably.

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