Regulator finalizes $276 mil. penalties on banks, securities firms over mis-selling of HK-tied derivatives

Seven banks and six securities firms were slapped with a combined 370 billion won ($276 million) in penalties by the financial regulator Wednesday over their mis-selling of equity-linked securities (ELS) products tracking Hong Kong’s H Index.

The amount is a sharp cut from the initial 1.4 trillion-won fine on the five lenders — 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, according to the Financial Services Commission (FSC).

Seoul’s financial regulator finalized the penalty after ordering the Financial Supervisory Service (FSS), the country’s financial watchdog, to further review some legal issues.

Earlier, the FSS had proposed a 600 billion-won penalty on the banks.

The regulator imposed 361 billion won in penalties on the seven lenders.

Banks and brokerages had sold a combined 19.3 trillion won worth of ELS products, tracking Hong Kong’s H index since 2021, according to earlier data from the watchdog.

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.

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.

KB Kookmin Bank was slapped with the largest amount of penalties at 173 billion won, followed by Hana Bank with 92.4 billion won and Nonghyup with 40.1 billion won.

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.