On June 4, the FSS held a temporary disciplinary committee meeting and decided to impose a total penalty of 600 billion won on five banks involved in the sale of Hong Kong ELS, including KB Kookmin, Shinhan, Hana, NH Nonghyup, and SC First Bank.
The initial penalty estimated by the FSS for the improper sale of Hong Kong ELS was around 4 trillion won. This amount was subsequently reduced to the 2 trillion won range during discussions, and in February, a penalty proposal of 1.4 trillion won was submitted to the Financial Services Commission (FSC). However, the FSC requested additional clarification on certain facts and applicable laws, returning the proposal to the FSS, which led to a re-evaluation about three weeks later.
The reduction in penalties was largely influenced by a reassessment of the violations. Under the Financial Consumer Protection Act, penalties are calculated based on the revenue obtained from violations, with different rates applied depending on factors such as the motivation and method of the violation, the scale of damage, and market impact. During this disciplinary meeting, the FSS reportedly lowered the assessment of the motivation and method of violations from 'medium' to 'low.' Consequently, the applicable penalty rate was also reduced, leading to a decrease in the total penalty amount.
Additionally, the exclusion of sales made during the grace period at the beginning of the Financial Consumer Protection Act from the penalty calculation likely contributed to the reduction. The FSC had previously decided to issue a non-action letter, indicating that it would generally provide guidance on violations of new and strengthened regulations from March to September 2021, six months after the law's implementation.
The fact that the compensation process for affected customers is nearly complete was also taken into account. There are 143,316 accounts with confirmed losses from Hong Kong ELS, and compensation procedures have been completed for over 99% of these cases. This was achieved as banks conducted voluntary compensation based on the dispute resolution guidelines announced by the FSS in March of last year.
As this disciplinary decision is a procedural matter within the FSS, the final penalty amount will be confirmed following a decision by the FSC. The final judgment process by the FSC is expected to raise subsequent issues regarding the penalty amounts for each bank and the possibility of further reductions.
* This article has been translated by AI.
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