Sanctions against banks related to the improper sale of Hong Kong H Index-linked securities (ELS) are likely to be postponed until next month. The Financial Supervisory Service (FSS) has significantly reduced the proposed fine from 1.4 trillion won to approximately 600 billion won and resubmitted it to the Financial Services Commission (FSC). However, discussions regarding further reductions are ongoing within the FSC.
According to financial industry sources on July 27, the FSC has not yet finalized whether it will approve the sanctions against the Hong Kong H Index ELS at its regular meeting scheduled for July 31. This delay is due to unresolved internal discussions regarding the calculation method for the fines and how much to factor in the banks' voluntary compensation efforts.
The FSS's sanction proposal reportedly includes fines totaling around 600 billion won for five banks: KB Kookmin, Shinhan, Hana, NH Nonghyup, and SC First Bank. This amount is less than half of the previously suggested 1.4 trillion won. After the FSC returned the initial proposal in May, the FSS adjusted the violation motivations and methods from 'medium' to 'low' to revise the fine calculation criteria.
Despite this reduction, there are still concerns within the FSC that the 600 billion won fine may be excessive. Some officials argue that since this is the first large-scale sanction for improper sales following the implementation of the Financial Consumer Protection Act, caution is needed regarding any further reductions.
The banking sector contends that since they have already conducted significant voluntary compensation for customers who suffered losses from the Hong Kong H Index ELS, imposing a large fine would effectively amount to double punishment. They also argue that the banks' earnings from ELS sales are limited to commissions, while the fines are calculated based on total sales, leading to complaints about the excessive penalty level.
For the FSC, confirming a large fine poses significant challenges. Recently, financial authorities have faced multiple legal defeats in sanction lawsuits against financial companies, prompting calls for a more thorough examination of the legal basis and proportionality of sanctions.
On the other hand, there are predictions that significant additional reductions may be difficult, as this sanction could set a precedent for future standards regarding improper sales of complex financial products like funds and ELS. Excessively lowering the fines based on voluntary compensation could send the wrong signal that financial companies can largely evade responsibility for improper sales.
Typically, the FSC does not hold regular meetings in August, but given the pressing issues, including the Hong Kong H Index ELS sanctions, there are discussions about convening a special meeting. A financial industry source stated, “While the fine has already been significantly reduced, there are opinions that the scale of the sanctions should also consider the voluntary compensation performance and sales revenue. This decision could set a standard for future sanctions on improper sales, making it difficult for the FSC to reach a conclusion.”
Meanwhile, the sanction proposal related to the customer information leak incident involving Lotte Card is expected to be presented at the FSC's regular meeting on July 31.
* This article has been translated by AI.
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