"Stop Excessive Money-Making" Securities Firms Tense After FSC Warning

Director Lee Bok-hyun Issues Strong Orders in Private Meeting
Discussion on Interest Rates of Credit Loans and Deposit Usage Fees

The Financial Supervisory Service (FSS) is set to take a strict stance on the calculation standards for securities firms' margin loan interest rates, which have sparked controversy over "money-making," as well as deposit utilization fees and stock lending commission rates. To this end, the FSS is hastening the launch of a task force (TF) in collaboration with the Korea Financial Investment Association (KOFIA). In response to the regulatory authorities' pressure, securities firms, feeling the tension, have lowered margin loan interest rates while also considering raising deposit utilization fees.

Security Firm CEOs Respond Immediately to Lee Bok-hyun's Orders

On the 9th, a senior FSS official stated, "We are currently working on forming the TF," adding, "Since there are many securities firms, we cannot request participation from all, but we will proceed by classifying them into large, medium, and small firms." Seo Yoo-seok, chairman of KOFIA, also said, "We will launch the TF together with the FSS to seriously discuss reasonable calculation standards with the industry (securities firms)," and added, "We are hastening the launch of the TF centered on representative firms."

Of course, even if the TF is launched this month, it is expected to take considerable time to derive improvement measures. A senior FSS official said, "Once the formation is complete, we plan to hold a kickoff meeting," but added, "However, since we need to coordinate industry interests, it will not be easy to come up with improvement measures quickly." He hinted that regardless of the TF launch schedule, it is important to pay attention to securities firms' proactive measures such as lowering margin loan interest rates. This is interpreted as an expectation for securities firms to improve voluntarily.

The securities industry lowered margin loan interest rates one after another, conscious of a meeting with FSS Governor Lee Bok-hyun on the 2nd. Even before the TF operation began, a mood was formed where the margin loan interest rate issue was resolved through voluntary reductions by major securities firms. At a private meeting with securities firm CEOs that day, when Governor Lee pointed out the margin loan interest rate issue, Choi Hyun-man, chairman of Mirae Asset Securities, promised a significant reduction, and other securities firm representatives also expressed their willingness to implement reductions. Governor Lee also requested special attention to discussions on the deposit utilization fee rate practice. It is reported that securities firm representatives responded actively to his request.

The FSS and KOFIA plan to discuss in the TF the following: △ Deposit utilization fee rate: improvement of calculation standards, establishment of unified disclosure standards, setting of utilization fee inspection cycles, preparation of official forms △ Stock lending commission rate: review of disclosure plans by securities firm and investor type △ Margin loan interest rate: examination of issues contradicting interest rate cuts, strengthening disclosure, and other measures.

Lee Bok-hyun, Governor of the Financial Supervisory Service, is attending the 'Meeting between the Governor of the Financial Supervisory Service and Securities Company CEOs' held on the 2nd at the Korea Financial Investment Association in Yeouido, Seoul, delivering opening remarks. Photo by Yoon Dong-joo doso7@

As securities firms are proactively lowering margin loan interest rates, the deposit utilization fee rate is expected to become a key issue going forward. The deposit utilization fee refers to the interest income generated when securities firms deposit customers' funds with Korea Securities Finance Corporation. Deposits have the characteristic of being freely withdrawable and depositable by customers at any time, similar in nature to a bank's demand deposit account, which has no forced savings. Although bank demand deposit accounts used for deposits, withdrawals, and payment settlements have very low interest rates, securities firms' deposit interest rates are set much lower. Internet banks in the first-tier financial sector offer interest rates of 2-3% depending on the amount for demand deposit accounts. Savings banks offer even higher interest rates, up to 5% annually. Although some securities firms raised deposit utilization fee rates earlier this year in line with the base interest rate hike, these rates are still far below the 0.1-0.3% interest rates securities firms paid when rates were low.

Securities Firms Earned 2.467 Trillion KRW from Customer Deposits Over Four Years

Deposit utilization fees are usually paid every three months. The payment interest rate and minimum amount criteria vary by company. Among domestic securities firms, based on a deposit of 1 million KRW, the highest deposit utilization fee rate is applied by Shinhan Investment Corp. at 1.05%. This translates to about 8,000 KRW returned to the customer after deducting 15.4% tax on 10,500 KRW. Toss Securities (1%) and KB Securities (1.03%) also pay interest rates in the 1% range. Following are Mirae Asset Securities (0.75%), Daol Investment & Securities (0.55%), NH Investment & Securities (0.5%), BNK Investment & Securities (0.4%), Hanwha Investment & Securities (0.4%), Kyobo Securities (0.4%), and SK Securities (0.4%). Shinyoung Securities pays a 0.1% deposit interest rate even to customers with minimum amounts under 500,000 KRW. According to data disclosed by Yang Jung-sook, a member of the National Assembly's Political Affairs Committee, securities firms earned 2.467 trillion KRW in revenue from customer deposits over the past four years. During this period, the interest paid to customers was only 596.5 billion KRW. Considering that margin loan interest rates approached 10% annually, this explains why securities firms cannot escape controversy over money-making.

In response to the FSS Governor's criticism that deposit utilization fee rates are disconnected from investor protection, major securities firms are reacting. Kakao Pay announced that it will provide weekly deposit interest of up to 5% annually to customers using the Kakao Pay Comprehensive Account until June. The minimum amount criterion was set at 300,000 KRW. KB Securities has begun reassessing deposit utilization fee rates for the first quarter of this year and plans to adjust them reasonably according to current interest rate levels.

An official from the Korea Capital Market Institute said, "Since the amount is calculated based on the interest paid by Korea Securities Finance Corporation, securities firms cannot drastically raise utilization fee rates on their own, but it is true that the rates are too low compared to similar products," adding, "I understand that major securities firm representatives agree with the FSS's opinion and have voluntarily started improvement efforts." A senior official from the financial investment industry said, "There have been ongoing issues regarding the appropriateness of interest and commission rate calculations. Securities firms have been weak in investor protection by not reflecting market changes such as base interest rates when calculating deposit utilization fees and margin loan interest rates, or by not disclosing stock lending commission rates."

This content was produced with the assistance of AI translation services.