South Korea's Financial Supervisory Service has issued a warning over the spread of so-called "bit-tu", investing with borrowed money. With stock market volatility rising, increases in credit loans, margin trading and investment in single-stock leveraged exchange-traded funds (ETFs) have raised concerns that investor losses could widen.

The FSS said on Tuesday that the bit-tu phenomenon is spreading across the financial sector and urged thorough management and supervision of the financial investment industry.

Lee Chan-jin (이찬진), head of the FSS, held the third Consumer Risk Response Council meeting on Monday at the regulator's headquarters in Yeouido, Seoul, and reviewed market conditions and the state of consumer protection in the financial sector.

"If household financial assets are excessively concentrated in a specific asset class, or if people invest using leverage beyond a tolerable level, they can be exposed to high risks of losses," Lee said.

He added that household financial soundness could be seriously damaged. He stressed that in such market conditions, financial firms should take responsibility for consumer protection to a higher level.

Lee urged financial firms to more closely check consumer risk factors when designing, manufacturing and selling new financial products. He said they should faithfully play the role of risk manager for customers' assets.

The FSS is paying attention to the recent spread of bit-tu across the financial sector because consumer losses could grow through forced liquidation if stock market volatility increases.

The average daily amount of forced liquidation related to margin trading rose by about twofold to 52.7 billion won in June from 26.2 billion won in March. Despite a drive to tighten household debt management, outstanding credit loans increased to 37.3 trillion won at end-June from 32.9 trillion won at end-March.

Concentration in single-stock leveraged ETFs is also subject to review. Individual investors were net buyers of 8.9 trillion won worth of single-stock leveraged ETF products from May 27 to June 22. Over the period, turnover was 105.3 percent and average daily trading value was tallied at 9.6 trillion won.

The FSS stressed that financial firms must sufficiently explain the structure and risks of leveraged investments to consumers. It also urged thorough management and supervision to prevent sales practices that effectively induce bit-tu.

For single-stock leveraged ETFs, it said it will continue to monitor market impact. If necessary, it plans to check whether asset managers are engaging in excessive marketing.

The council also discussed an incident in which investor funds were withdrawn without authorisation due to a recent brokerage hacking case. The FSS said it immediately began an inspection related to the matter and also conducted brokerages' own inspections.

"The FSS will also carry out its inherent role without wavering, including swift and strict crackdowns on market-disrupting acts," Lee said.