Financial Regulators Demand Analysis of Securities Firms' Strong Performance

Financial authorities have requested securities firms to critically evaluate whether their record-breaking performance growth is due to external market conditions or their own competitiveness. This is interpreted as a call for firms to move away from their current revenue structures that rely solely on increased trading volumes or interest rate changes, and instead strengthen sustainable revenue bases such as Wealth Management (WM), Investment Banking (IB), pension, and overseas businesses. Kwon Dae-young, Vice Chairman of the Financial Services Commission, stated that it is time for the securities industry to soberly reflect on whether its record profits in recent years are based on industry insight and capability or external factors like the semiconductor cycle. Major securities firms are expected to post first-quarter results exceeding market expectations. Within and around financial authorities, there's a view that risk management issues, obscured by the current boom, also need to be inspected. An industry official noted that while increased trading volumes significantly boosted performance in the past, the need for business structure diversification is growing due to simultaneous increases in market volatility and commission competition. Consequently, securities firms are accelerating efforts to expand businesses that can secure stable recurring revenue in the long term, with a notable focus on the WM sector and targeting ultra-high-net-worth individuals.

Large securities firms are enhancing comprehensive wealth management services for ultra-high-net-worth clients by expanding family offices and dedicated teams. The growth of the retirement pension market and increasing demand for asset management due to aging populations are also cited as background factors for strengthening WM businesses. Competition for IB capabilities is intensifying, with firms looking to expand their business areas beyond traditional real estate finance into mergers and acquisitions (M&A), initial public offerings (IPOs), structured finance, and overseas deals. The industry anticipates that global networks and overseas subsidiaries could become key differentiators for large securities firms in the future. However, some view this process of organizational change as not offering equal opportunities for all securities firms. While large firms with strong capital and brand competitiveness can expand WM, IB, and global businesses, smaller and mid-sized firms, which remain heavily reliant on brokerage and specific asset classes, face a relatively greater burden of business restructuring. Differences in future performance stability may widen based on their ability to secure WM and global business competitiveness, with market consolidation likely to favor large firms possessing capital, overseas networks, and customer bases. Restructuring of business operations and deepening polarization within the securities industry are also expected.