South Korea's financial watchdog has notified five banks of penalties totaling around 2 trillion won for mis-selling equity-linked securities tied to Hong Kong's H Index. The banks, which have already incurred massive losses from compensating customers, face final approval from the Financial Services Commission. Sales of these ELS products reached 19.3 trillion won since 2021.
The Financial Supervisory Service (FSS) notified five banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, NH Nonghyup Bank, and SC Korea—on November 28 of penalties amounting to around 2 trillion won (US$1.37 billion) for mis-selling equity-linked securities (ELS) products tracking Hong Kong's H Index. The banks had already faced significant losses after compensating customers for the mishap, as they failed to provide full information on contract terms and associated risks.
ELS are hybrid securities whose returns are linked to the performance of underlying equities, including stock indices. Banks and brokerages sold a combined 19.3 trillion won worth of HK-tied ELS since 2021. KB Kookmin Bank sold the largest amount at 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.
In early 2024, buyers suffered massive losses as Hong Kong's H Index plunged. The regulator ordered partial compensation for the losses. Last year, the banking sector compensated a total of 1.4 trillion won to customers over the fiasco. The penalties will be finalized by the Financial Services Commission (FSC) later, according to industry sources.
This case highlights ongoing efforts to curb improper sales of high-risk financial products, with the FSS emphasizing the need for clearer risk disclosures.