"Who's Responsible for This? Resign": Financial Authorities Bow Heads amid Leverage ETF Criticism (Comprehensive)

National Assembly Political Affairs Committee’s Policy Briefing from Financial Authorities
"Further Increases in Margin Requirements, Leverage Ratio Adjustments Under Review"
Both Ruling and Opposition Parties: "A Policy Failure"... Demands for

"Who planned and created this distorted product?"

"It's the doing of talent nurtured by the Financial Services Commission and the Financial Supervisory Service."

At the National Assembly, the financial authorities came under fire as responsibility was questioned regarding single-stock leverage products at the center of controversy over increased stock market volatility. Lawmakers demanded not only additional measures—such as adjusting leverage multiples—but also called for the resignations of Financial Services Commission Chairman Lee Okwon and Financial Supervisory Service Governor Lee Chanjin. The opposition party raised suspicions that pressure from the Blue House to support the stock market led to the launch of these leverage exchange-traded funds (ETFs), and urged for a parliamentary investigation.

Financial Services Commission Chairman Lee Okwon is reporting on business at the full meeting of the Political Affairs Committee held at the National Assembly on July 29, 2026. Photo by Hyunmin Kim

Lee Okwon and Lee Chanjin: "We are deeply sorry... We take responsibility seriously"

At a work report session of the Political Affairs Committee held at the National Assembly on July 29, Financial Services Commission Chairman Lee Okwon responded to a question from Park Dae-chul, a lawmaker from the People Power Party, asking whether he agreed that the single-stock leverage ETF crash was a man-made disaster caused by the Financial Services Commission and the Financial Supervisory Service. He said, "In hindsight, I take the significant expansion of market volatility very seriously."

When lawmakers pressed him to apologize for the recent stock market crash as the top financial regulator in front of the public, Chairman Lee also bowed his head, saying, "As the ultimate person responsible for the financial market, I am deeply sorry for not being able to live up to public trust." Governor Lee Chanjin of the Financial Supervisory Service added, "I realize the gravity of my responsibility," and continued, "I acknowledge my responsibility to some extent, and I will do my utmost to minimize volatility and restore market confidence. I am truly sorry."

This Political Affairs Committee plenary session was the first oversight report from the financial sector, including the Financial Services Commission and the Financial Supervisory Service, since the formation of the 22nd National Assembly in the latter half of its term. However, as the KOSPI index fell to the 5,400 range and circuit breakers were triggered for two consecutive days, most questions from lawmakers focused on so-called 'Samjeon-Nix' (Samsung Electronics and SK hynix) leverage ETF products and other capital market-related topics, which are pointed to as the main factors behind the recent spike in stock market volatility.

The first question raised was about the proportion of leverage ETFs in the recently observed market volatility. Chairman Lee said, "There are not just a single reason, but multiple complex factors at play," citing the uncertain global semiconductor industry outlook and the concentration of Samsung Electronics and SK hynix in the domestic stock market. He also added, "In the case of leverage products, processes such as rebalancing have contributed to increasing market volatility." While he acknowledged that single-stock leverage ETFs have played a considerable role in the recent KOSPI plunge, he drew a line by saying that it would not be appropriate to blame the increased market volatility solely on leverage ETFs.

In response, lawmaker Park Dae-chul stated, "Saying that it isn't appropriate to attribute the increased volatility to leverage ETFs alone is nothing but evading responsibility," and raised his voice to label this incident as a man-made disaster coming from the financial authorities. He gave several reasons: the entity that launched the leverage ETF was the Financial Services Commission and the Financial Supervisory Service; the approval process for the ETF was rushed; and Governor Lee Chanjin himself had previously said at a press briefing that "even if we had to lie down, we should have blocked it." Park noted that the KOSPI's market capitalization had evaporated by approximately 2,389 trillion won in just the past month—well over three times the national budget of 728 trillion won—and asked, "Do you agree that the crash of single-stock leverage products was a man-made disaster caused by the Financial Services Commission and the Financial Supervisory Service?"

Controversy over Rushed Launch and the Blue House's Instructions: "The Financial Services Commission Was Responsible"

There were also voices pointing out issues with the hasty process in listing leverage ETFs, questions over whether stress tests were conducted, and suspicions of Blue House involvement. Media interviews earlier reported that Kim Yongbeom, Chief Policy Officer at the Blue House, had instructed the launch of the leverage ETF, further fueling concerns inside and outside the market over the independence of policy decisions by the financial authorities.

In response, Chairman Lee brushed off the allegations, saying, "Since the end of last year, issues were raised by the market, media, and research institutions regarding how this was possible abroad but blocked in Korea," and "With the intention of improving this aspect of the system, we went through various steps, including amending enforcement ordinances and consultations with relevant ministries." To a pointed question by lawmaker Park Sunghoon of the People Power Party—whether pressure from the Blue House to support the stock market led to the product's launch—he drew a clear line, saying, "There was no procedural problem." He avoided giving a direct answer about whether the financial authorities had asked the Blue House to review the policy from the perspective of investor protection and concerns about risk.

Lawmaker Song Eon-seok of the People Power Party pointed out that the scheduled launch, initially expected for the second half of the year, was suddenly moved forward by several months: "The public is suspicious about why it was pushed ahead so quickly," he noted. Chairman Lee explained, "The notice of proposed legislation and subsequent procedures went ahead as scheduled, and the listing took place once those were completed."

In addition, Chairman Lee responded to the question, "Who planned and created this distorted derivative product? There are even rumors that the Financial Services Commission opposed it—who originally planned it?" by clarifying, "The responsible department is the Financial Services Commission," adding, "The Financial Services Commission reported it and coordinated with other relevant ministries." When asked if the commission was initially lukewarm about the leverage product launch, he confirmed, "That’s correct."

The committee also saw repeated calls for the resignation of senior financial officials. Lawmaker Shin Dong-wook of the People Power Party asked, "Is there any real countermeasure? Stock prices have fallen by 36% just in July." He continued, "Is this the fault of an individual, a corporation, or the government?" In particular, he criticized Governor Lee Chanjin, saying, "You said you would block it even if you had to lie down, but in the end, you failed." He further argued, "You staying a few more days won't result in any new countermeasures, and trust in the market is already lost. At the very least, you should say you will step down after dousing the flames."

To this, Chairman Lee replied, "I accept the situation with a heavy heart and will do my utmost to fully restore market trust."

Lawmaker Choi Eun-seok of the People Power Party said, "You've turned the South Korean stock market into a short-term gambling den," insisting, "A parliamentary inquiry is essential, and if the truth can't be revealed through that, an independent counsel after the change of administration should get to the bottom of this." In this regard, Yoo Dong-soo, a lawmaker of the Democratic Party and chair of the Political Affairs Committee, said, "According to relevant laws, a parliamentary investigation can be conducted by a special or standing committee if demanded by at least one-quarter of Assembly members," adding, "I will consult with both parties’ floor leaders."

"Raise Minimum Margin, Adjust Leverage Ratios": Unanimous Demands for Immediate Supplementary Measures

The committee members were united in the urgent need for additional measures to restore market confidence, such as raising the minimum deposit for trading, tightening leverage ratios on single-stock leverage products, and imposing trading restrictions. With market turmoil at a peak, there was a broad consensus that existing fixes were insufficient to address the structural crowding issue. Supplementary measures announced on July 16 included: ▲ immediate halt of new listings and advertisement ban ▲ raising minimum cash deposit requirement to 30 million won ▲ increasing the trading lot size to 20 units ▲ tightening requirements for tracking error management ▲ expanding mandatory pre-education to three hours.

Lawmaker Son Myung-soo of the Democratic Party stressed, "The financial market’s collapse is almost at the level of the IMF crisis or the financial crisis itself, even though it's neither," adding, "What is needed now is the restoration of trust." He urged, "Since the single-stock leverage product is being pointed to as one of the causes of market instability, the Financial Services Commission and the Financial Supervisory Service must utilize all their expertise and authority to take swift and decisive action to reassure the public that the market is no longer just a casino."

The committee members proposed raising the additional deposit requirement to 50 million won and introducing variable leverage models to allow flexible adjustment of leverage ratios. Chairman Lee said, "The overall assessment from market participants is that the supplementary measures announced on the 16th will likely be quite effective," but he also added, "We will continue to monitor the market and consider raising the margin further or adopting various other measures as needed."

Regarding the introduction of 'variable leverage structures' as proposed by lawmaker Kim Hyun-jung of the Democratic Party, he said, "Reducing leverage could help ease volatility," but added, "The real question is how to address matters such as the beneficiaries' assembly and investor interests, which we will examine as the bill is being processed." Until now, the financial authorities’ position had been that lowering the leverage ratio would be difficult to implement due to the need for a vote by the beneficiaries’ assembly, aside from not being consistent with the purpose of the scheme. Furthermore, Chairman Lee said they are also considering total volume management restrictions, staggered rebalancing, and ways to reduce trading size.

The previous day, at a meeting with relevant players from the financial investment industry, Chairman Lee had already indicated his willingness to adopt further cards as needed. Specific options raised included introducing simulated trading or requiring prior investment experience, and capping individual investments in financial investment products at a certain percentage, such as 20% of the total investment.

Yonhap News Agency

Meanwhile, Governor Lee Chanjin explained that his earlier remark that "we should have blocked the launch of single-stock leverage ETFs even if we had to lie down" was intended as a statement in favor of investor protection. Responding to accusations that this was "a clear act of dereliction of duty," Governor Lee said, "My original intention was to emphasize investor protection because the relevant products had no risk diversification effect, and at the time, there were sharp fluctuations in the underlying stocks. There was no other context beyond that."

Earlier, at a press briefing last month, Governor Lee said, "While the effect on exchange rate stability is minimal, volatility in the stock market is being amplified," and added in self-reflection, "I regret not having tried to block this product, even if it meant lying down in protest." Following this, he faced criticisms that such statements were inappropriate for a senior government official.

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