Korean banks mis-sold HSCEI-linked ESL products: FSS

Financial Supervisory Service Governor Lee Bok-hyun

The alleged mis-selling of equity-linked securities (ELS) products tied to Hong Kong’s Hang Seng China Enterprises Index (HSCEI) and sold by major South Korean commercial banks was confirmed as true, according to the chief of the South Korean financial watchdog.

In an appearance on a television news program broadcast on Sunday, Financial Supervisory Service Governor Lee Bok-hyun said that the authority uncovered cases of mis-selling of the ELS products by banks “targeting the elderly.” Some financial institutions were negligent in their responsibilities to take the financial status and investment purposes of individual consumers into account when recommending products, Lee said. A few cases mentioned by the governor included instances where people were encouraged to invest in ELS with retirement funds or cancer insurance benefits, or where securities firms attempted to avoid recording their product explanations, which is required by law.

“Dispute resolution procedures will take place once the investigation is concluded, but apart from the official procedures, it could be worthwhile for financial institutions to consider implementing voluntary compensation measures,” Lee said. The FSS plans to finalize its suggestions on the dispute compensation within the month, following secondary on-site inspections after the Lunar New Year holidays.

Regarding possible sanctions, the FSS chief said “various measures” are under consideration, including a “complete ban” on ELS products by commercial banks. “We will comprehensively review whether to allow small bank branches to sell ELS products or to limit sales channels to asset management firms, ensuring the measures would not infringe on the right of choice,” Lee added.

Lee also touched on a real estate project financing (PF) issue that has also been raising concerns within the financial sector. “Financial institutions must account for anticipated losses from PF insolvency in their financial statements,” he said, outlining the authority’s plans to establish a restructuring framework by the third quarter of 2024.

“Our aim is to finalize the PF restructuring within this year, aiming to facilitate the flow of funds to sectors with high growth prospects, particularly as we anticipate a reduction in interest rates in 2025.”