Securities firms criticized for selling interest on deposits… The usage fee rate hastily increased

Amid criticism that securities companies pay excessively low usage fees for the profits earned from investor deposits, securities companies are appearing one by one to increase deposit usage fee rates. Compared to banks, the deposit usage fee is similar to the interest rate on a quick deposit/withdrawal account. Kiwoom Securities, which has the largest deposit size, significantly increased its usage fee rate to the 1% range last month, and small and medium-sized securities companies such as Sangsang Certificate and KR Investment & Securities also adjusted their usage fee rates this month. Other securities companies also seem to be pushing to increase usage fee rates within the year.

According to the financial investment industry on the 21st, the Financial Supervisory Service and the Financial Investment Association have implemented model standards for calculating investor deposit usage fee rates from the 1st of this month. The best standards include adjusting the usage fee rate calculation cycle to more than once a quarter and improving the disclosure of usage fee rates by subdividing them by deposit type and amount to enable easy comparison by securities company. Previously, the Financial Supervisory Service, Korea Financial Investment Association, and major securities companies formed a Task Force (TF) to rationalize deposit usage fees to establish best standards.

Investor deposit is money that an investor puts into an account for stock trading. The securities company entrusts this money to Korea Securities Finance, which manages the funds and returns the profits generated to the securities company. Securities companies pay a portion of this profit to investors as a usage fee.

In the meantime, investors have consistently pointed out that the deposit service fee rate is excessively low compared to the profits earned by securities firms. According to the Financial Supervisory Service, the profit earned by 30 domestic securities companies from deposits over the four years from 2019 to 2022 is 2.467 trillion won. However, during the same period, the interest paid by securities companies to investors was only 596.5 billion won, or about 24.18% of total profits.

According to the Korea Financial Investment Association, the average deposit fee rate of 10 major domestic securities companies is 0.65% per year. The base interest rate rose by 2.75 percentage points (p) from 0.75% in August 2021, two years ago, to 3.5% recently. However, during the same period, the average usage fee rate of 10 securities companies only increased by 0.43 percentage points from 0.13% to 0.65%. This is why criticism has been raised that securities firms engage in the interest business.

As public opinion worsens and the best standards for calculating deposit service fee rates are implemented, securities companies are also rushing to increase service fee rates. On the 20th of this month, Sangsang Certificates increased the deposit usage fee rate from 0.1% to 1.05%. KR Investment & Securities also announced that from the 27th, the deposit service fee rate will be raised from 0.25% to 1%. Kiwoom Securities, which had previously maintained a low usage fee rate of around 0.25%, significantly increased it to 1.05% on the 8th of last month, rising to the highest level in the industry along with Shinhan Investment & Securities (1.05%).

Other securities companies are also considering raising usage fee rates. Currently, the only securities companies with usage fee rates in the 1% range are Kiwoom Securities, Shinhan Investment & Securities, and KB Securities (1.03%). In addition, for securities companies, it is in the 0.2% to 0.6% range. Korea Investment & Securities (0.4%) and IBK Investment & Securities (0.25%) announced plans to increase usage fee rates within the year. Mirae Asset Securities, Meritz Securities, NH Investment & Securities, Samsung Securities, Hana Securities, Hi Investment & Securities, and Daishin Securities are also internally reviewing whether to increase usage fee rates. In the industry, there are predictions that the number of securities companies will increase to raise the usage fee rate to the low 1% level, which is the upper level.

According to best practices, securities companies must report the results of calculating usage fee rates to the Korea Financial Investment Association within this year. An official from a securities company said, “Most securities companies are conducting an internal review with a view to raising the usage fee rate within this year,” and predicted, “The securities companies that started raising it first raised it to the 1% range, so it will be at a similar level.”