South Korea's financial regulator fines seven banks and six brokerages W374.6b over Hong Kong ELS

Key points

South Korea's Financial Services Commission imposed a record 374.6 billion won in penalties on seven banks and six brokerages over misselling of H Index-linked ELS.
The FSC fined the seven banks 361 billion won, with KB Kookmin Bank facing the largest penalty at 172.3 billion won, followed by Hana Bank at 92.5 billion won.
The Financial Supervisory Service cut the bank fines from a 600 billion won recalculation in June, which itself followed an earlier proposal of over 1 trillion won.
The FSC found that banks failed to adequately explain investment risks, and that product documents omitted historical return simulations or altered the periods covered.
Banks and brokerages sold 19.3 trillion won of H Index-linked ELS since 2021, and banks could challenge the penalties in administrative court.

The Financial Services Commission imposes a record US$269.5 million (374.6 billion won) in penalties over misselling of H Index-linked ELS, sharply below earlier proposals.

South Korea's Financial Services Commission on Wednesday imposed a record US$269.5 million (374.6 billion won) ($280 million) in penalties on seven banks and six securities firms over the misselling of equity-linked securities tied to the Hang Seng China Enterprises Index, according to The Korea Herald. Yonhap reported a combined 370 billion won (US$276 million) and said the regulator imposed US$259.7 million (361 billion won) on the seven lenders. KB Kookmin Bank received the largest fine at US$124 million (172.3 billion won), followed by Hana Bank at US$66.5 million (92.5 billion won), NH NongHyup Bank at US$28.9 million (40.2 billion won) and Shinhan Bank at US$27.8 million (38.7 billion won), The Korea Herald reported. Standard Chartered Bank Korea was fined US$12.9 million (17.9 billion won), Woori Bank US$238,000 (331 million won) and Suhyup Bank an administrative penalty of US$30,000 (42 million won). The six securities firms received a combined US$7.8 million (10.9 billion won), of which Korea Investment & Securities accounted for about US$6.6 million (9.2 billion won). The bank fines were reduced from about US$431.7 million (600 billion won) recalculated by the Financial Supervisory Service in June, which followed an earlier proposal of over US$719.4 million (1 trillion won), according to The Korea Herald. Yonhap cited an initial 1.4 trillion-won fine on five lenders and said the FSC finalized the penalty after ordering the FSS to review some legal issues further. An FSC division director cited court rulings in ELS-related civil cases, the rationale for an initial enforcement grace period under the consumer protection law and provisions allowing reductions based on investor compensation. The FSC found that banks failed to adequately explain investment risks and, in some cases, to determine product suitability, The Korea Herald reported. Product documents omitted historical return simulations or altered the periods covered. Banks could challenge the penalties in administrative court, though the report said industry sentiment points toward acceptance. Yonhap reported that banks and brokerages had sold a combined US$13.9 billion (19.3 trillion won) of H Index-linked ELS since 2021, and that buyers suffered large losses in early 2024 when the index plunged.