[DigitalToday reporter Sang-yup Oh (오상엽)] The Financial Supervisory Service urged brokerages to proactively manage credit loans to reduce investor losses from heightened market volatility. It also stressed it could activate additional regulatory tools if the industry’s self-management is inadequate.

The FSS said on Oct. 27 it held a meeting jointly with the Korea Financial Investment Association with chief risk officers at 10 comprehensive financial investment business operators and reviewed the implementation status of the recently announced measures to strengthen self-management of credit loans.

The FSS called on the industry to ensure that limits set by brokerages, including a 90 percent cap on total credit provision and a 15 percent stock-by-stock limit on credit loan exposure, work properly in the field.

It said proactive management is needed with investor protection as the priority even before related IT systems are built or internal rules are updated.

It also expressed regret over the level of credit loan management by brokerages since a CRO meeting in June. The FSS again stressed brokerages should move away from mechanical, uniform risk management and actively manage credit loans by comprehensively considering market conditions and the soundness of companies and investors.

It left open the possibility of additional regulation if self-management is not sufficient. It judged that if stock prices plunge amid an excessive increase in credit loan balances, it could lead to large-scale forced selling and amplify market shocks.

Credit loan balances this year rose to 38.0 trillion won at the end of May from 35.7 trillion won at the end of April. They later fell to 32.1 trillion won at the end of July, then came to 33.3 trillion won at the end of September and declined to 30.3 trillion won on Oct. 22.

Some brokerages are already cutting their credit loan limits or introducing real-time monitoring systems.

According to cases disclosed by the FSS, one brokerage lowered credit ratings for all domestic stocks to reduce limits. It also lowered the basic limit for stocks with a high concentration of credit loans to 200 million won from 300 million won and restricted extensions for limit increases.

In another case, a brokerage uses robotic process automation to check credit loan conditions and stocks with sharp intraday swings in real time. When it detects abnormal signs, it takes steps such as lowering stock grades or restricting credit loans.

Another brokerage is operating a three-stage monitoring system that checks credit loan balances and sharply moving stocks multiple times a day, including before the market opens, during trading and in the afternoon.

CROs from brokerages attending the meeting said they agreed on the need to strengthen credit loan management and would faithfully implement self-management measures to strengthen investor protection and risk management.

The FSS said it plans to continue checking with the Korea Financial Investment Association whether the brokerage industry’s management of total credit provision limits and stock-by-stock exposure is being carried out effectively.