Record KRW 370 Billion Fine Confirmed for Hong Kong ELS Mis-selling, Reduced from Initial KRW 1.4 Trillion Proposal

Financial authorities finalized fines of approximately KRW 370 billion today (Nov. 4) against banks and securities firms for the incomplete sales of Hong Kong Hang Seng China Enterprises Index (HSCEI) equity-linked securities (ELS).

The Financial Services Commission (FSC) held its 19th regular meeting this afternoon and decided on a total of KRW 371.242 billion in fines for 7 banks and 6 securities firms involved in the Hong Kong H-index ELS mis-selling.

This marks the largest financial penalty ever imposed by the FSC.

Additionally, the FSC finalized decisions to impose fines in the amounts of KRW 1.778 billion on the banks and KRW 1.612 billion on the securities firms, respectively.

Among the banks, KB Kookmin Bank received the largest fine at KRW 172.334 billion (along with a penalty of KRW 1.3 billion).

Other banks included Shinhan Bank at KRW 38.745 billion, Hana Bank at KRW 92.475 billion, NH Nonghyup Bank at KRW 40.175 billion (penalty of KRW 420 million), Standard Chartered Bank Korea at KRW 17.9 billion (penalty of KRW 16 million), and Woori Bank at KRW 331 million.

Sh수협은행 (Sh Suhyup Bank) was ordered to pay only a penalty of KRW 42 million.

Among securities firms, Korea Investment & Securities received a fine of KRW 9.245 billion (penalty of KRW 12 million).

NH Investment & Securities and Shinhan Securities were fined KRW 23 million and KRW 10 million, respectively.

Mirae Asset Securities received a fine of KRW 4 million (penalty of KRW 300 million), while KB Securities and Samsung Securities received penalties of KRW 300 million and KRW 1 billion, respectively.

The FSC determined that these banks violated their obligation to explain products—such as omitting simulation results for yields or overly simplifying the profit-and-loss structure—thereby omitting matters critical to financial consumers' decision-making.

It also concluded that securities firms violated the principles of appropriateness and suitability under the Financial Consumer Protection Act, omitted warnings regarding risk grades while violating the duty to explain, and breached bans on unfair solicitation.

The conclusion on the Hong Kong ELS fines comes approximately three years after authorities launched an investigation into the incomplete sales in November 2023.

The FSC emphasized, "The fines and penalties decided this time are the largest monetary sanctions ever imposed by the FSC," adding, "As this is the first case of Financial Consumer Protection Act violations involving major financial institutions, we deliberated multiple times to ensure strict and rational measures were taken in accordance with the law and principles."

The finalized fines were reduced by more than KRW 1 trillion from the initial proposal of KRW 1.4 trillion sent by the Financial Supervisory Service (FSS) to the FSC.

Compared to the approximately KRW 600 billion resubmitted by the FSS in May following the FSC's rejection, the amount was reduced by over KRW 200 billion.

It is reported that the FSC utilized provisions under the Financial Consumer Protection Supervision Regulations to reduce the FSS-determined fines by 30 to 40 percent for each company.

Consideration was given particularly to the fact that banks compensated approximately KRW 1.4 trillion in damages—an amount exceeding the scale of unjust enrichment—and that some banks won partial victories in related civil lawsuits.

It was also reported that authorities factored in the circumstance that the ELS mis-selling damage occurred during the grace period at the beginning of the implementation of the Financial Consumer Protection Act.

During that six-month period when no-action letters were applied, sanctions were scheduled to be exempted unless violations were severe, such as involving willful misconduct or gross negligence.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.