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Thu, February 3, 2022 | 06:25
Companies
Sales of high-risk derivatives nearly double over 2 years
Posted : 2019-09-27 22:05
Updated : 2019-09-30 18:14
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By Lee Kyung-min

The sales of high-risk derivative financial products have nearly doubled over the past two years, fueling concerns that a far greater number of investors will see their losses snowball in the months to come, data showed Friday.

According to data submitted to Rep. Je Youn-kyung of the ruling Democratic Party of Korea from the Financial Supervisory Service (FSS), 16 commercial banks sold over a combined 1 million such products worth 49.8 trillion won ($41.4 billion) as of August, nearly double the 2017 figure when it sold 664,310 products worth 30.7 trillion won.

The products in question including derivative-linked funds (DLF) are structured to track the performance of underlying assets such as interest rates and government-issued bond yields. Their returns are determined by the movements of those assets.

Other products such as equity-linked securities and derivative-linked securities can be combined and sold in the form of equity-linked trust or derivative-linked trusts. They can also be sold in the form of equity-linked funds or derivative-linked funds.

Over a third, or 40 percent of the products, were sold to those aged over 60, whose primary income comes from savings and retirement benefits from products sold and managed by insurers or banks.

This also raises questions about whether the sales officials carried out their duties to ensure the buyers understood how the products are designed to make profits as well as possible risks.

Compensation, albeit partial for investors, will be inevitable given bank sales officials more likely than not have failed to have clearly explain the intricately structured financial products, grounds for punishment for "incomplete sales," which warrants compensation.

Other factors to determine the compensation rate includes whether the financial firms made recommendations reflecting the investors' source of income, age, financial knowledge and how much of a risk they are willing to take.

Meanwhile, sales of the risk-prone product came to the fore after buyers of DLFs sold by Woori Bank and KEB Hana Bank lost their investments in their entirety.

The FSS as early as next week is expected to announce its findings on the months-long investigation into the two banks over "incomplete sales," which in easy terms mean irresponsible marketing, claimed by most investors.

The FSS is believed to have found circumstantial evidence suggesting the two banks resorted to excessive marketing in violation of both relevant laws and in-house protocols, an indication of institutional failure of observing proper internal control.

According to the Financial Consumer Agency (FCA), a consumer rights group, and Logos, a law firm, at least 10 people aged over 60 filed a suit with the Seoul Central District Court against the two banks for fraud and negligence, Sept. 25.

The law firm said the banks deliberate failure or neglect at best caused the losses and they should give the victims compensation in full.

The plaintiffs will also question the validity of the signatures from victims on the consent form, claiming the bank officials treated them as a mere formality without fulfilling their duty to clearly explain the products.


Emaillkm@koreatimes.co.kr Article ListMore articles by this reporter



 
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