Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Financial authorities to draw up compensation guidelines for investors incurring ELS losses
Financial Supervisory Service (FSS) headquarters in Seoul / Yonhap
By Anna J. Park
Amid expectations of major financial disputes over banks' sales of equity-linked securities (ELS) products related to the Hang Seng China Enterprises Index (HSCEI) starting early next year, financial authorities have been preparing to draw up compensation standards, aiming to launch a dispute settlement process for the matter swiftly.
As substantial losses for investors are expected due to the recent plunge of the HSCEI, one of the key points of contention in the dispute resolution process is whether an ELS investor is a first-time investor in such products, and whether the investor's age is advanced enough to have a hard time properly understanding the risks associated with such products.
Once the losses start being confirmed, the Financial Supervisory Service (FSS) is expected to officially launch thorough investigations into the contract terms of such ELS products as well as voice recordings between investors incurring losses and the sales personnel at financial businesses. If a bank's engagement in mis-selling is confirmed, compensation will be offered to the investors who suffered losses.
The determination of the exact amount of compensation will be adjusted voluntarily by banks, based on the compensation guidelines to be drawn up by the FSS. If it is revealed through investigation that a consumer has been subject to mis-selling or inappropriate recommendations, the bank will have to refund the entirety or a portion of the original principal.
"The FSS is currently looking into various measures, as we await the results of on-site inspections related to the ELS sales by banks and financial institutions. While dispute settlement cases should be handled one-by-one in principle, there's a possibility that a collective compensation standard method will be adopted in the upcoming ELS cases, as previously used in cases of problematic private equity funds for the sake of practicality," an official from the FSS said.
Last month, the FSS began conducting on-site inspections on KB Kookmin Bank, which sold the largest portion of ELS products in the country so far, as well as other sellers, including major banks and key brokerage firms.