South Korea's FSS chief admits rushed leveraged ETF review as 'bring money home' plan backfires
Key Takeaways
- •FSS chief Lee Chan-jin acknowledged that his agency completed its review of the single-stock leveraged ETFs before the Korea Exchange preliminary process because regulators were working toward an FSC-announced launch schedule.
- •Sixteen funds offering twice the daily price movement of Samsung Electronics or SK Hynix shares went on sale on May 27, seven days before the June 3 election, a timing opposition lawmakers have repeatedly criticized.
- •FSS data confirmed 2.3242 trillion won ($1.57 billion) in realized losses at 10 financial investment firms through August 14, while a Citi analysis estimated total retail losses of roughly 58 trillion won ($38.7 billion).
- •Regulators suspended new fund listings on July 16 and raised the minimum cash requirement from 10 million won to 30 won starting July 31, after which trading volume dropped about 97 percent from its June peak.
- •The Finance Ministry, FSC, and Bank of Korea stated they never calculated the policy's effect on capital flows, and while three senior officials have accepted fault, the individual who ordered the funds sold remains unidentified.
South Korea's top financial supervisor has told lawmakers that regulators rushed single-stock leveraged ETFs through their review in order to meet a preset launch date.
Financial Supervisory Service (FSS) chief Lee Chan-jin is now the third senior official to accept fault over products that cost retail investors trillions of won.
What the FSS chief admitted
Testifying at the National Assembly's Political Affairs Committee audit on Monday, Lee acknowledged that the FSS completed its work on the single-stock leveraged products before the exchange had finished its own process, rather than letting the ETF listing clear a Korea Exchange preliminary review first.
Even so, it remains unclear who ordered the funds to be sold. Critics have pointed to Kim Yong-beom, the former presidential policy chief; Lee Eog-weon, chairman of the Financial Services Commission (FSC); and Lee Chan-jin himself.
People Power Party lawmaker Park Dae-chul asked whether the approval steps had ever been carried out in reverse order before. Lee said regulators had checked and that this appeared to be the first such case.
Lee attributed the speed to a deadline. After the FSC announced a listing schedule in mid-April, he said, regulators “moved quickly through the review” to stay on schedule.
May 27, the launch date the FSC had set, was the day 16 funds went on sale, each designed to rise or fall at twice the daily move of Samsung Electronics (KRX; 005930) or SK Hynix (KRX; 000660) shares. The election followed one week later, on June 3, and opposition lawmakers have repeatedly claimed the launch was timed to land just before the vote.
At a June 22 briefing, Lee said he believed he should have blocked the launch and that the products appeared to have “only fattened securities firms.”
On October 8, FSC Chairman Lee Eog-weon apologized at his own audit, saying he “deeply regret[s] the various losses, concerns, and damages that have resulted.”
A market note from Citi's Mohamed Apabhai, head of Asia-Pacific trading strategy, put Korean retail losses at roughly $38.7 billion, or 58 trillion won, by late July. The FSC chairman dismissed a separate 54 trillion won ($36.5 billion) estimate from an overseas bank as unofficial, but the FSS's own data confirmed 2.3242 trillion won ($1.57 billion) in realized trading losses at 10 financial investment firms between the May 27 launch and August 14. Those confirmed figures cover only realized losses at the 10 firms through August 14, leaving the far larger bank estimates officially unverified.
Did the FSC anticipate retail losses?
The Finance Ministry, the FSC, and the Bank of Korea all told the office of lawmaker Kim Sang-hoon that they never calculated how much the funds would reduce money leaving Korea or increase investment at home — even though that was the FSC's central argument when it first proposed the change on January 30.
The Cabinet approved the rule on April 21 through an enforcement decree, so the National Assembly never voted on it.
Within weeks, trading became difficult to contain. On July 16, regulators halted new fund listings. From July 31, they raised the minimum cash required to trade the products from 10 million won (about $6,750) to 30 million won ($20,250), and trading subsequently fell about 97% from its June peak.
Cryptopolitan has previously reported that Korean traders are moving money abroad to obtain leverage domestic rules do not permit, using KORU-linked perpetual futures on Binance, Bybit, OKX, and KuCoin that can run to 150 times the Kospi's daily swing. Tiger Research, working with Chainalysis, estimated that about 700 trillion won left domestic exchanges between 2021 and 2026, and licensed Korean crypto exchanges shed 35% of their won deposits in the first half of 2026.
Three senior officials have now accepted fault, but with no one yet identified as having ordered the funds sold, accountability for the onshore-investment push remains the audit's open question.
Sources
- Financial Services Commission
- Financial Services Commission
- The Korea Times
- Hankyoreh
- Korea JoongAng Daily
- Cryptopolitan (original report)
