Single-stock leveraged ETFs reignite turf war between financial regulators
Financial Services Commission Chairman Lee Eog-weon answers a lawmaker’s question during a parliamentary audit at the National Assembly in Seoul, Thursday. At left is Financial Supervisory Service Gov. Lee Chan-jin. Yonhap
A long-running turf war between Korea’s top financial regulator and financial watchdog is flaring up again over responsibility for the introduction of single-stock leveraged exchange-traded funds (ETFs), amid steep retail investor losses and heightened market volatility, according to market watchers Thursday.
The Financial Supervisory Service (FSS) labor union attributed the controversy to the agency’s lack of independence from the Financial Services Commission (FSC), bringing their recurring struggle over policymaking authority and supervisory autonomy back into focus.
Leveraged and inverse ETFs tied to Samsung Electronics and SK hynix began trading on the Korean stock market on May 27. The products have since come under fire over heavy investor losses and concerns about their impact on market volatility.
Figures submitted by the FSS to the National Assembly showed that retail investors at 10 major domestic brokerages incurred combined losses of 6.31 trillion won ($4.8 billion) between the launch and Aug. 14. Of that amount, 2.32 trillion won represented realized losses, while the remaining 3.99 trillion won, or 63.2 percent, consisted of unrealized losses.
At Monday’s parliamentary audit, FSS Gov. Lee Chan-jin acknowledged that the review process had been unusually rushed to accommodate the launch timetable set by the FSC.
The FSS union said Wednesday that the underlying problem lies in a system that subordinates supervision to government policy. With the FSC exercising oversight of the FSS and approving its staffing levels and budget, the agency faces institutional constraints on challenging policy decisions, the union argued.
“Even when government financial policies carry risks or reveal shortcomings, concerns about repercussions for the agency, including its budget, make it difficult to speak out,” the union said.
The union added that the FSS cannot enact or revise supervisory regulations or independently submit matters for the FSC’s consideration. Those restrictions hamper timely intervention when risks surface during policy implementation, it said.
“When those risks materialize and consumers suffer losses, responsibility ultimately falls on the FSS,” the union said. “The resulting scrutiny then leads to tighter government control, perpetuating a vicious cycle.”
Employees are seen beneath a sign for the Financial Services Commission at Government Complex Seoul, Sept. 9, 2025. Korea Times photo by Hong In-ki
Although both bodies are charged with maintaining financial market stability, they serve different functions. The FSC, the country’s top financial regulator, sets financial policy, promotes industry development and oversees regulatory reform. The FSS, a special statutory body, conducts examinations of financial companies, supervises their operations and protects consumers.
The FSC’s authority over the FSS’ organization and finances has made the relationship a persistent source of friction, particularly when policy objectives clash with supervisory concerns.
A notable confrontation arose during the 2018 accounting review of Samsung Biologics. The FSS determined that the company’s 2015 change in accounting treatment constituted deliberate accounting fraud. The FSC sought another review, saying further examination was necessary before a clear conclusion could be reached.
Tensions resurfaced earlier this year over a proposal to broaden the powers of the FSS’ special judicial police. The agency sought a wider investigative remit and the ability to open investigations into suspected unfair trading on its own initiative.
The FSC questioned whether a nongovernmental supervisory body should wield such extensive law enforcement powers, citing the potential for abuse and difficulties in ensuring adequate oversight.
The FSS union called for the FSC’s supervisory and budget approval powers over the FSS to be transferred to the National Assembly to strengthen the agency’s operational independence.
At Thursday’s parliamentary audit, meanwhile, both FSC Chairman Lee Eog-weon and FSS Gov. Lee apologized to the public over losses linked to single-stock leveraged ETFs.
“Despite the policy considerations and objectives behind their introduction, I feel a heavy sense of responsibility for the consequences,” the FSC chairman said. “We will take greater care and adopt more precise measures to protect investors and maintain market stability.”