South Korea Watchdog Warns of Risks From Debt-Fueled Stock Bets

South Korea’s Financial Supervisory Service has begun reviewing market conditions and consumer-protection practices across the financial industry as concerns mount that excessive borrowing to invest and concentrated bets on specific stocks could deepen investor losses.

The FSS said on July 7 that it held its third Consumer Risk Response Council meeting a day earlier to discuss key issues affecting financial consumers. Participants warned that the risk of heavier losses is rising as stock-market volatility increases and investors crowd into specific names while taking on debt beyond their repayment capacity.

The agency said debt-fueled investing is spreading across the financial sector despite tighter oversight of household debt and credit extension. Sharp swings in the stock market could worsen consumer losses through forced liquidations, it added. Outstanding margin loans stood at 37.3 trillion won ($27 billion) at the end of June, up 10 trillion won ($7.2 billion) from 27.3 trillion won ($19.8 billion) at the end of 2025. Over the same period, the daily average value of forced sales tied to unpaid trades jumped more than sevenfold to 52.7 billion won ($38.2 million) from 7.1 billion won ($5.1 million).

The council also raised the prospect of further market volatility from concentrated flows into recently listed single-stock leveraged products and from rebalancing. From June 27 through June 22, retail investors were net buyers of 8.9 trillion won ($6.4 billion) of single-stock leveraged products, accounting for 92% of total net purchases. During that period, turnover reached 105.3% and average daily trading value totaled 9.6 trillion won ($7 billion).

The council asked financial firms to fully explain the structure and risks of leveraged investing to consumers and to closely oversee sales practices so they do not effectively encourage debt-fueled investing. It said it will continue monitoring risk disclosures and market impact related to single-stock leveraged products and, if necessary, inspect whether asset managers engaged in excessive marketing.

The meeting also raised concerns about “third-party risk” tied to insurance claims. The term refers to behavior by third parties involved in insurance payouts, such as providers with pricing power over medical or legal services, that encourage excessive use or raise service fees for profit. The council said pressure to sign up for unnecessary insurance policies could lead to mis-selling and increase consumers’ financial burden.

The council said rising insurance payouts driven by excessive use of medical services ultimately lead to higher premiums for other policyholders. It plans to draft and implement related guidelines. The agency also said it has taken steps to strengthen insurers’ internal controls over third-party risk across the product life cycle, including product design, underwriting, sales and after-sales management.

Lee Chan-jin, head of the FSS, said the agency would continue to carry out its core role without wavering, including swiftly and strictly cracking down on market-disrupting behavior to support the sound development of capital markets.

Ko Jung-sam, Hankyung.com reporter, jsk@hankyung.com