South Korean banks investigated over ETF trust fee practices

The Financial Supervisory Service (FSS) is investigating major banks regarding the sale of Exchange Traded Fund (ETF) trusts. The investigation focuses on whether banks violated the Financial Consumer Protection Act by failing to fulfill their duty to explain fee structures to customers.

Data shows that between January last year and May this year, the average holding period for ETF trusts at six major banks was only 42 days. Despite these short durations, 89.7% of cases utilized upfront fee structures rather than deferred fee structures, which are generally more advantageous for short-term investors. The total fee revenue collected by these six banks during this period reached 586.4 billion won.

The FSS is examining whether banks intentionally encouraged upfront fees to maximize revenue and whether they sufficiently explained the pros and cons of different fee types. The regulator faces a dilemma: if a violation of the duty to explain is proven, banks may face sanctions and compensation requirements; if no illegality is found, the regulator may only be able to suggest institutional improvements.