South Korea's financial regulator cut penalties on five banks by more than half for mis-selling Hong Kong equity-linked products, a sharp reversal after the country's top financial body sent the initial proposal back for review.
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South Korea watchdog slashes bank fines to 600 billion won on ELS mis-selling
South Korea's financial regulator cut penalties on five banks by more than half for mis-selling Hong Kong equity-linked products, a sharp reversal after the country's top financial body sent the initial proposal back for review.
South Korea's Financial Supervisory Service slashed proposed fines on five banks to 600 billion won ($393 million) for mis-selling Hong Kong H-index equity-linked securities, less than half the 1.4 trillion won it initially sought.
"The sanctions were reduced after assessing the severity of the banks' motives and methods of violating the law as relatively low," the FSS said in a statement following its emergency sanctions deliberation committee meeting on Thursday.
The FSS had originally pre-announced fines totaling 1.9 trillion won before submitting a reduced 1.4 trillion won proposal to the Financial Services Commission in February. The FSC returned the proposal last month, requesting additional review of factual relationships and applicable legal principles. The affected lenders — KB Kookmin Bank, Shinhan Bank, Hana Bank, NH Nonghyup Bank and Standard Chartered Bank Korea — have already completed voluntary compensation totaling 1.3 trillion won, reaching agreements with about 96% of all victims.
The final penalty will be determined by the FSC at a future full meeting, but the sharp reduction signals that regulators may be tempering their enforcement stance after banks shouldered the bulk of compensation costs. The case underscores the risks embedded in structured products tied to Chinese equities, with cumulative sales of HSCEI-linked ELS reaching 19.3 trillion won since 2021.
Banks and brokerages sold a combined 19.3 trillion won of ELS products tracking the Hang Seng China Enterprises Index since 2021, with KB Kookmin Bank accounting for the largest share at 8.2 trillion won. Shinhan Bank sold 2.37 trillion won, followed by NH Nonghyup at 2.13 trillion won and Hana Bank at 2.11 trillion won.
The products, which promised principal protection if the H-index stayed above 70% of its subscription level at maturity, triggered massive losses when the index plunged in early 2024. Local regulators ordered banks to compensate customers after finding they failed to provide all necessary information about contract terms and associated risks.
Standard Chartered Bank Korea, the local unit of the London-headquartered lender, saw its Hong Kong-listed shares fall 3.6% on Thursday following the announcement. The fine represents a fraction of the 1.2 trillion won initially proposed for the five lenders, according to the FSS.
The FSC's decision to return the sanctions proposal last month had fueled speculation that the top regulator was pushing for a further reduction. The final outcome will set a precedent for how South Korea handles similar cases of mass-market structured product failures, with implications for the broader 19.3 trillion won ELS market.
This article is for informational purposes only and does not constitute investment advice.
[1] S Korea FSS Fines STANCHART (02888.HK) and 4 Other Banks HKD3B over Improper Sales of HSCEI-Linked Products[2] FSS cuts bank ELS fines from 1.4 trillion to 60 billion won[3] Watchdog slashes fines on 5 banks over mis-selling of HK-tied derivatives[4] Watchdog sharply cuts penalties on 5 banks over mis-selling of HK-tied derivatives[5] HSBC, StanChart, Prudential fall after report China tightening offshore account rules
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