South Korea's financial regulations are being questioned for “insufficient risk assessment”: single-stock leveraged ETFs were not stress-tested before listing

Comparatively, the Korea Financial Services Commission (FSC) completed a product structural risk review before approving the launch of a single-stock leveraged ETF, but it did not conduct stress tests on specific ETF products, nor simulated the market impact that could be caused by a sharp decline in core weighted stocks such as Samsung Electronics and SK Hynix.

The relevant risk analysis data submitted by the Financial Services Committee mainly includes internal product risk review documents, individual stock market transactions, and leveraged and reverse ETF research reports previously issued by the Capital Market Research Institute, according to the South Korean National Power Party Member Park Sung-hoon's office on the 3rd.

The relevant person in charge of the Financial Services Commission said that the submitted materials covered all the existing analysis and confirmed: “The Financial Services Commission did not conduct independent stress tests on a single leveraged ETF, nor did it entrust external agencies to carry out stress tests on product launches.”

Earlier, Park Sung-hoon asked the Financial Services Commission at the National Assembly Committee meeting to explain whether risk assessments such as extreme market tests were carried out before introducing single-stock leveraged ETFs. Lee Yi-won, chairman of the Korea Finance Committee, responded at the time that the relevant products had “undergone a thorough review” and promised to provide analytical data. However, the final submission did not include quantitative risk tests for individual stock collapse scenarios. (Supple)