[Alpha Biz= Paul Lee] SEOUL, August 10 — South Korea’s financial authorities have launched formal sanction procedures against several major banks over the alleged misselling of equity-linked securities (ELS) tied to the Hong Kong H-Index, which suffered steep declines between November 2023 and early last year, leading to significant investor losses.



The Financial Services Commission (FSC) recently decided to calculate fines based on investors’ principal rather than the commissions earned by banks. Under this interpretation, KB Kookmin Bank, Shinhan Bank, Hana Bank, and NongHyup Bank could collectively face fines of up to KRW 7.4 trillion — equivalent to 50% of the principal invested. 

 

 

KB Kookmin Bank alone, which sold about KRW 8 trillion worth of the products, could be liable for as much as KRW 4 trillion. The prospect of multi-trillion-won penalties has triggered concern across the banking industry.



Under the Enforcement Decree of the Financial Consumer Protection Act, fines can be substantially reduced depending on the level of investor compensation provided. Since the removal of the 50% cap on fine reductions, there is now a legal basis for a full waiver in certain cases. Regulators have previously stated that even in large-scale loss incidents, fines could be significantly lowered if sufficient remedial measures are taken. Nevertheless, excessive sanctions could draw strong pushback from banks that have already undertaken voluntary compensation programs.




Separately, the Fair Trade Commission (FTC) is reviewing two major collusion cases involving banks: alleged coordination on mortgage loan-to-value (LTV) ratios and alleged bid-rigging in government bond auctions. The FTC claims that KB Kookmin, Shinhan, Hana, and Woori Bank shared around 7,500 LTV-related data points in advance, with a decision on sanctions expected by year-end.



In the government bond case, involving 15 financial institutions — including KB Kookmin, Hana, NongHyup, IBK, and Korea Development Bank — the FTC is expected to release its findings as early as later this year. Market estimates suggest potential fines of up to KRW 2 trillion for the LTV case and KRW 7–8 trillion for the bond bid-rigging case.

 

 

 

 

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