FSS to Strengthen Response to AI Hacking Linked to 'Mythos' and Overheated Leveraged ETFs

'2nd Consumer Risk Response Council' Convened
Warning Issued on Overheating and Excessive Borrowed Investment Ahead of Single-Asset Leveraged ETF Launch
Heightened Scrutiny of Finfluencer and General Agency Mis-selling

The Financial Supervisory Service (FSS) has begun to strengthen its response to risk factors destabilizing financial markets, including cyberattacks using advanced artificial intelligence (AI) and the overheating of leveraged exchange-traded funds (ETFs). The FSS also announced that it will intensify related supervision and inspections, as it sees increasing risks of financial consumer damage stemming from AI-based hacking, excessive leveraged investments, and unfair trading by financial influencers (finfluencers).

Yonhap News Agency

On the 18th, the FSS announced that it had convened the "2nd Consumer Risk Response Council" under the chairmanship of FSS Governor Lee Chanjin and discussed key current issues related to financial consumers.

The council assessed that, following the recent release of the high-performance AI "Mythos," there is a growing possibility of full-scale cyberattacks exploiting AI. In particular, it was pointed out that advanced AI could quickly identify security vulnerabilities in financial institutions and carry out simultaneous attacks, raising concerns that hacking incidents could result in large-scale disruptions to core financial services such as online banking.

In response, the FSS will work with relevant agencies to establish a countermeasure system against AI-based cyberattacks and will also pursue the advancement of information security systems using generative AI. Additionally, in line with the "Proactive Digital Risk Supervision Plan" announced last month, the financial sector will continue to be encouraged to build preemptive risk management systems.

Governor Lee emphasized, "As the financial market environment is changing rapidly due to the advancement of AI, it is necessary to focus supervisory capabilities to respond in a timely manner," adding, "We must actively drive improvements in the security systems of financial institutions to preemptively address AI-based cyber threats."

The risks associated with leveraged ETFs, which have recently attracted significant attention, were also discussed. With the launch of single-asset leveraged ETFs scheduled for the 27th, the FSS expressed concerns that excessive capital inflows could increase market volatility and potentially lead to losses for individual investors. In fact, during the sharp stock market rally in the first quarter of this year, a substantial amount of individual funds flowed into leveraged ETFs, and the turnover rates of major leveraged and inverse products were found to be much higher than those of ordinary stocks.

In light of these trends, the FSS will conduct continuous monitoring of the management status, premium/discount rates, and trading patterns of leveraged and inverse ETFs. The FSS also plans to encourage securities firms to develop a variety of consumer protection indicators within their KPIs for overseas stock business, and to strengthen pre-event and advertising internal controls and monitoring.

Concerns were also raised regarding disorderly solicitation practices among insurance general agencies (GAs). The FSS identified risks of consumer harm as some GAs have engaged in illegal private lending or induced unnecessary insurance enrollment under the pretense of providing tax or labor consulting. As of the end of last year, there were 316,000 GA-affiliated agents, accounting for about 59% of all insurance agents.

The FSS will move to revise regulations, including restrictions on GAs engaging in both consulting and insurance sales and stricter penalties for regulatory evasion. The FSS will also encourage insurance companies to strengthen self-inspections of incomplete sales and enhance systems to reduce disputes.

Measures will also be strengthened to address illegal activities by finfluencers and investment advisors. The FSS has identified an increase in unfair trading activities on social networking services (SNS), such as stock price manipulation through pre-purchase and subsequent stock recommendations, and unregistered operations of pseudo-investment advisory businesses. Accordingly, the FSS plans to operate an AI-based finfluencer monitoring system 24/7 and, in cooperation with the Korea Communications Commission and other agencies, block illegal financial advertisements.

Governor Lee directed, "In a situation where stock market volatility persists, we must remain highly vigilant and respond resolutely to activities that encourage excessive margin investing and leveraged investments by financial companies, as well as to market-disrupting actions by certain finfluencers."

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