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South Korea's $1.37 Billion Bank Penalty: 5 Lenders Face ELS Scandal Fallout

South Korea's financial watchdog has notified five major banks of approximately $1.37 billion in penalties for mis-selling equity-linked securities. These banks had already compensated customers after the Hong Kong H index plunged, causing massive investor losses. The penalties come after banks sold 19.3 trillion won worth of ELS products linked to the Hong Kong index since 2021. The Financial Supervisory Service plans to introduce new guidelines to better protect consumers from similar financial incidents in the future.

Key Points: South Korea Fines 5 Banks $1.37 Billion Over ELS Mis-selling

  • Five major banks notified of $1.37 billion penalties for ELS mis-selling
  • Banks sold 19.3 trillion won in Hong Kong H index-linked products since 2021
  • KB Kookmin Bank sold largest amount at 8.2 trillion won in ELS products
  • Financial watchdog to issue new consumer protection guidelines for investment risks
2 min read

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

Five major South Korean banks face $1.37 billion penalties for mis-selling Hong Kong H index-linked ELS products that caused massive investor losses and required compensation.

"The improper sales of equity-linked securities tracking the Hong Kong H index have exposed the problems in our consumer protection system - FSS Governor Lee Chan-jin"

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.

- IANS

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Reader Comments

R
Rohit P
$1.37 billion penalty is massive! But good to see regulators taking action. In India, we need stronger consumer protection too. Many banks sell mutual funds and insurance without explaining risks properly. 😕
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Arjun K
This shows how important financial literacy is. Common people trust banks blindly, but even big institutions can mis-sell products. In India, we should focus more on financial education in schools and colleges.
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Sarah B
While penalties are necessary, I hope this doesn't make banks too risk-averse. The key is balanced regulation - protect consumers but don't stifle financial innovation. The new guidelines seem like a step in right direction.
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Vikram M
KB Kookmin sold 8.2 trillion won worth! That's huge exposure. Reminds me of some Indian banks pushing certain products aggressively. Customers need to ask more questions and not just trust bank representatives blindly. 🏦
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Michael C
The compensation of 1.4 trillion won to customers shows accountability. In India, we often see banks delaying or avoiding compensation for mis-selling. Strong regulatory action like this sets the right precedent.

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