Interim Results of Securities Firms Inspection
Annual Revenue More Than Tripled Compared to 2023
As overseas investments by individual investors have expanded recently, securities firms' commission income from overseas stock brokerage has reached an all-time high. In response, financial authorities are set to launch on-site inspections following a review of the aggressive overseas stock marketing activities by securities firms. If illegal or unfair practices are found during the inspection-such as exaggerated advertising that misleads investors or insufficient explanations of investment risks-the authorities plan to take strong measures, including suspending overseas stock business operations.
According to interim results of the overseas investment review released by the Financial Supervisory Service on December 19, the top 12 securities firms by overseas stock trading volume recorded approximately 1.95 trillion won in commission income from overseas stock brokerage between January and November this year, marking a record high. This figure is more than three times higher than the 581 billion won recorded in 2023. During the same period, income from foreign exchange fees (for individual investors) related to overseas investment brokerage also surged from 147.7 billion won to 452.6 billion won.
While overseas investment by individual investors has spread and increased securities firms' income, nearly half of the investors have seen little benefit. As of the end of August, 49.3% of individual investors' overseas stock accounts were in loss, up about 20 percentage points from the previous year's 29.7%. The profit per account also dropped significantly to 500,000 won, compared to 4.2 million won the previous year.
Losses were also significant in individuals' overseas derivatives investments. From the beginning of this year through October, individual investors recorded a net loss of 373.5 billion won in overseas derivatives (futures and options) trading. This loss accounts for about 51% of the total overseas derivatives trading volume (723.2 trillion won) by individuals during this period. Over the past five years, accumulated losses have reached 2.0527 trillion won. The financial authorities expressed concern, stating, "Individual investors have continued to experience large-scale losses in overseas derivatives investments for several years, regardless of market conditions."
Market observers interpret the recent on-site inspections by financial authorities of major securities and asset management firms-aimed at verifying the adequacy of investor protection and risk management in overseas investments-as closely related to these developments. The expansion of overseas investments by individual investors has created a need to review the status of investments in overseas stocks and high-risk leveraged products.
What has drawn the attention of financial authorities is the excessive competition among securities firms to attract investors. The authorities pointed out, "Across the securities industry, firms are aggressively launching competitive events to attract overseas investment clients, particularly for U.S. stocks, and to expand their market share." They added, "In particular, they are encouraging overseas investments by offering cash rewards proportional to trading volume, incentives for new or dormant clients, and commission discounts."
Insufficient risk disclosure related to overseas investments was also identified as an area in need of improvement. The financial authorities stated, "Industry-wide, there is a lack of customer guidance regarding risks such as exchange rate fluctuations, delays in rights payments due to time zone differences, and differences in tax systems when investing overseas." They added, "Most firms only provide risk disclosures through terms and conditions when accounts are first opened, and only a few provide ongoing guidance."
Based on the results of this review, the financial authorities plan to begin on-site inspections of securities firms starting today. They will also conduct preemptive investor protection inspections to check whether performance-based compensation systems that encourage excessive competition are being operated and whether risk disclosures to investors are adequate. If illegal or unfair practices are found-such as exaggerated advertising that misleads investors, investment recommendations that do not match the investor's risk tolerance, or insufficient explanations of investment risks-they will respond strongly with the highest level of measures, including suspending overseas stock business operations.
To correct the sales practices centered on overseas investments, the financial authorities plan to suspend new cash-based events and advertisements related to overseas investments by securities firms until March next year. Additionally, by the first quarter of next year, they will pursue institutional reforms to completely ban trading volume-based events that could induce excessive trading. Securities firms are advised to refrain from hosting overseas investment events and advertisements when establishing their 2026 business plans by the end of this year, and to strengthen investor guidance on overseas investment risks through HTS and MTS pop-ups.
The financial authorities stated, "Next year, we will sequentially conduct inspections to strengthen internal controls and risk management related to overseas investments. In addition, by continuously carrying out inspections to reinforce internal controls and risk management at financial investment companies, we will do our utmost to ensure preemptive investor protection."
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