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Photo courtesy of Yonhap News |
[Alpha Biz= Paul Lee] South Korea’s Financial Supervisory Service (FSS) has issued advance notices to five major banks indicating its plan to impose roughly KRW 2 trillion in penalties for the mis-selling of Hong Kong H-Index (HSCEI) linked equity-linked securities (ELS). If finalized, it would mark the first multitrillion-won sanction under the Financial Consumer Protection Act and the largest penalty ever imposed on the banking sector.
Advance notices were sent to KB Kookmin Bank, Shinhan Bank, Hana Bank, NH NongHyup Bank, and SC First Bank. Woori Bank, though also a seller of the product, was not included due to smaller sales volume.
The FSS reportedly determined “illegal income” based on total sales amounts rather than fees alone, leading to the unusually large penalty size. Under the law, fines can be levied up to 50% of the financial gains arising from misconduct.
Banks are concerned that multitrillion-won penalties—on top of voluntary compensation already paid—could weaken capital ratios by increasing risk-weighted assets and reducing CET1 capital. Additional capital requirements may also restrict corporate lending capacity and other policy-driven financing activities.
The case will be reviewed at the FSS Sanctions Committee on December 18, after which penalty levels and potential sanctions against institutions and executives will be forwarded to the Securities and Futures Commission and the Financial Services Commission for final approval.
If confirmed within December, the penalties would likely be recorded as non-operating losses, impacting banks’ fourth-quarter earnings.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
