Hold regulators accountable for reckless leveraged ETF rollout

Financial Services Commission (FSC) Chairman Lee Eog-weon and Financial Supervisory Service (FSS) Gov. Lee Chan-jin apologized again during the National Assembly's comprehensive audit of the National Policy Committee on Thursday, expressing heavy hearts over the single-stock leveraged exchange-traded fund (ETF) debacle.

The products reportedly inflicted losses exceeding 6 trillion won ($4.54 billion) on individual investors within just two and a half months, from May 27 to Aug. 14.

The two regulators responsible for introducing the products belatedly pledged investor protection and acknowledged the need for painful reflection. Yet neither adequately explained how a hastily implemented policy that amplified market volatility and effectively turned stock trading into gambling was approved.

At an earlier parliamentary audit on Monday, Lee Chan-jin admitted that the FSS had accelerated its review to meet the FSC's announced listing schedule. On Thursday, however, he insisted that he could not accept accusations of a rushed review.

He also declined to answer opposition lawmakers asking who had demanded that regulators shorten the review period to meet a predetermined launch date rather than prioritize investor protection.

Lee had previously remarked in June that he should have blocked the introduction even if it meant lying down in protest. Nevertheless, he has consistently avoided explaining why the FSS unusually shortened its review process, potentially compromising its regulatory independence.

Remarkably little is known about how these products were introduced despite the enormous financial damage and resulting erosion of confidence in capital markets.

A presidential office meeting in January reportedly left no minutes. The FSC and FSS have also refused to disclose records of their numerous discussions about the products.

President Lee Jae Myung appeared to distance himself from the controversy, remarking, "Someone must have made the decision."

Who initiated the policy and how it was approved therefore remain unanswered questions.

Meanwhile, the ruling Democratic Party blocked attempts to summon Kim Yong-beom, former presidential chief of staff for policy, as a parliamentary audit witness, despite his leading role in introducing leveraged ETFs. This obstructed even a basic attempt to establish the facts.

Investors undoubtedly bear responsibility for their investment decisions. But that principle cannot absolve regulators of responsibility for introducing products without adequately examining their risks or anticipating the potentially devastating consequences.

The losses amount to trillions of won, while the damage to public confidence in financial oversight could prove even more enduring.

Regulators cannot expect expressions of regret to substitute for accountability. The authorities must disclose the decision-making process, identify who authorized the accelerated approval and establish responsibility for this policy failure.

Such accountability is indispensable.