5 banks given prior notice of $1.37 billion in penalties in South Korea

Seoul, Nov 28 Five banks were notified by the financial watchdog on Friday of penalties of around 2 trillion won ($1.37 billion) over their mis-selling of equity-linked securities (ELS) products tracking Hong Kong's H Index, informed sources said.

The Financial Supervisory Service sent penalties notice to the five banks -- KB Kookmin Bank, Shinhan Bank, Hana Bank, NH Nonghyup and SC Korea -- which had already suffered massive losses as they had compensated customers over the mishap, reports Yonhap news agency.

The penalties will be finalised by the Financial Services Commission (FSC) later, according to the local industry sources.

Banks and brokerages have sold a combined 19.3 trillion won worth of ELS products, tracking Hong Kong's H index since 2021, the FSS said. ELS refers to hybrid securities whose returns are linked to the performance of underlying equities, including a stock index.

In early 2024, HK-tied ELS buyers suffered massive losses as Hong Kong's H index plunged. The financial regulator ordered banks to compensate part of the losses incurred by customers as they failed to provide all necessary information to consumers about products, including contract terms and associated risks.

KB Kookmin Bank sold the largest amount of HK-tied ELS products worth 8.2 trillion won, followed by Shinhan Bank with 2.37 trillion won, NH Nonghyup with 2.13 trillion won and Hana Bank with 2.11 trillion won.

Last year, the banking sector compensated a combined 1.4 trillion won to customers over the fiasco.

Meanwhile, South Korea's financial watchdog will soon provide renewed guidelines for financial institutions to make it easier to understand the investment risks associated with products they sell, a move to better protect consumers following a recent series of financial incidents, including improper sales.

The Financial Supervisory Service (FSS) delivered such plans at a debate session with lawmakers, experts and civic groups in Seoul, held to discuss financial consumer protection measures. "The improper sales of equity-linked securities (ELS) tracking the Hong Kong H index have exposed the problems in our consumer protection system," said FSS Governor Lee Chan-jin.

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