South Korean securities firms' guaranteed bonds, investment accounts surge to $57 billion, prompting calls for investor protection

South Korea's major securities firms are seeing a rapid expansion in their "principal-guaranteed" issuance bonds and comprehensive investment accounts, with the total value reaching 57 trillion won. This growth, however, is straining the firms' financial health.

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Comprehensive financial investment businesses' issuance bonds and comprehensive investment accounts are relatively new compared to traditional financial products, and investors are likely not fully aware of the product structure and risks.

These financial products, which include issuance bonds and comprehensive investment accounts, are not protected by the Depositor Protection Act. This means investors face the risk of losing their principal if a securities firm goes bankrupt. Despite this, the total outstanding balance of issuance bonds has surged from 15.6 trillion won in 2020 to 54.4 trillion won in the first quarter of this year. Comprehensive investment accounts have also seen significant growth, increasing from 1.2 trillion won in 2025 to 2.8 trillion won in the first quarter.

The increased reliance on these funding sources is linked to a growing obligation for "comprehensive financial investment businesses" (종투사) to allocate a portion of these funds to "venture capital." This obligation is set to rise from 10% this year to 25% by 2028. Consequently, these firms supplied 9.88 trillion won in venture capital as of the first quarter.

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General investors may mistakenly believe they are similar to regular bank deposits based on the principal guarantee. However, there are separate risks, such as the credit risk of the comprehensive financial investment business and maturity mismatches in funding and investment periods.

This expansion in riskier investments has led to a noticeable decline in the capital adequacy and liquidity ratios of major securities firms. While the liquidity ratio for general domestic securities firms dropped by 4 percentage points between 2017 and 2025, it fell by a significant 19 percentage points for comprehensive financial investment businesses during the same period.

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The sales company must be obligated to immediately notify investors in case of a significant event, such as the occurrence of bad assets, in the terms and conditions of the comprehensive investment account.

Experts warn that investors may not fully grasp the risks associated with these relatively new products, mistaking them for safe bank deposits. "Investors may mistakenly believe they are similar to regular bank deposits based on the principal guarantee," said Kim Na-yul, a research fellow at the Korea Institute of Finance. "However, there are separate risks, such as the credit risk of the comprehensive financial investment business and maturity mismatches in funding and investment periods."

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It is necessary to mandate that comprehensive investment account operators provide quarterly investment and management reports to investors at a level comparable to public funds.