Rising stock-market volatility amid external uncertainty, including the Iran war, is fueling consumer complaints about equity-linked deposits, or ELDs. Financial regulators have warned banks to tighten controls because the products could be mis-sold, but banks have opted to keep selling them rather than shut the window. The move reflects a balancing act: staying mindful of regulators while trying not to give up fee-based income.
According to the financial sector on the 16th, the Financial Supervisory Service on April 9 called in vice presidents from major banks and urged stricter management of sales limits for investment products such as ELDs by risk rating. The watchdog said that if sales of high-risk products rise in a period of heightened volatility, it could lead to mis-selling.
The FSS views ELDs and exchange-traded funds, or ETFs, as having potential mis-selling risks similar to the Hong Kong H-index equity-linked securities, or ELS, episode. ELDs advertise maximum rates in the 10% to 14% range, but actual returns can vary widely depending on the performance of the KOSPI 200. If the index moves outside a set range, the return can be fixed at around 2%, widening the gap between expected and realized returns when markets swing sharply.
As a result, more investors who signed up expecting principal protection and high yields are ending up with rates lower than regular time deposits, the report said. Complaints have also continued from customers who said they joined without fully understanding that early cancellation triggers fees and that interest is not paid.
Even so, banks have not closed ELD sales channels. KB Kookmin Bank recently launched a similar product while strengthening customer guidance and staff training. Shinhan Bank has responded by revising product brochures, and NH NongHyup Bank is preparing internal steps to improve brochures and non-face-to-face guidance. Rather than cut sales, banks are seeking to limit liability by strengthening explanations.
Some in the industry say the burden has grown. As regulators emphasize risk controls for investment-product sales, pressure has increased, while the need to secure non-interest income remains. A commercial bank official said, “Risk-management demands have grown, but with alternative products available, it is difficult to completely stop selling investment products.”
For now, banks appear set to keep searching for a balance between regulatory warnings and revenue, maintaining sales while trying to reduce responsibility through tighter disclosures and controls.
* This article has been translated by AI.
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