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.
FSS prepares penalty measures for HK-tied ELS sellers
Financial Supervisory Service (FSS) Governor Lee Bok-hyun speaks to reporters at FSS headquarters in Seoul, Wednesday. Yonhap
By Anna J. Park
Sanctions review committee to be held as early as May
The Financial Supervisory Service (FSS) plans to send out inspection reports to major sellers of equity-linked securities (ELS) products tied to the Hong Kong stock market, including five commercial banks — KB Kookmin, Hana, Shinhan, NH NongHyup Banks and Standard Chartered Bank Korea — sometime within this week.
According to the financial watchdog on Monday, the inspection reports contain the results of on-site and document investigations conducted on the banks from early January to early March this year. The FSS inspected the five banks as well as six other brokerage firms — Korea Investment, Mirae Asset, KB, NH, Samsung Securities and Shinhan Securities — during the period.
The reports will include detailed facts on the improper ELS product sales by the inspected banks, such as deficiencies in the banks' sales systems, inappropriate sales target-setting and inadequate customer protection policies, either identified or discovered during the two-months-long inspections. The reports will also state the banks' violations of key financial principles, including suitability principles and prohibition of undue solicitation.
FSS officials explained that the supervisory agency will demand formal responses from the banks regarding the reports.
Upon receiving their official responses, the FSS plans to initiate procedures to review and discuss sanction measures to be imposed on them.
"Once the draft of the sanction measures is drawn up, the FSS aims to convene the sanctions review committee as early as May," an FSS official explained.
Sanctions discussed at the FSS' review committee will later be confirmed through resolutions at the Securities and Futures Commission (SFC), a subcommission of the country's top financial regulator Financial Services Commission (FSC), responsible for the oversight of the securities and futures market.
It is expected that the sanctions against the sellers will be three-pronged: penalties against institutions, penalties against employees and fines. The size of fines is likely to be determined according to the amount of voluntary compensations offered by each bank.
The Act on the Financial Consumer Protection stipulates that fines will be imposed up to 50 percent of the sales amount, when mis-selling is confirmed. However, FSS Governor Lee Bok-hyun previously said that it would be only natural that sanctions and fines are to be reduced, if sellers take appropriate remedial measures for restitution.
The financial sector largely estimates that the industry's compensation amount would be around two trillion won ($1.47 billion), which is about 40 percent of the losses incurred by the mis-selling of ELS products reaching maturity between January and July this year.
Meanwhile, banks are moving faster to compensate some customers whose losses have been confirmed. Following Hana Bank's first voluntary compensation case at the end of last month, Shinhan Bank also announced that it completed paying up the compensation to 10 customers early this month.
KB Kookmin Bank, which has the largest mis-selling sales volume of the ELS products, is planning to set up voluntary compensation committees and to hold discussions with customers who have confirmed losses.