Photo courtesy of Yonhap News

 

 

[Alpha Biz= Kim Jisun] Seoul, August 6, 2025 – The Financial Supervisory Service (FSS) has initiated disciplinary procedures against 11 financial institutions over the alleged mis-selling of equity-linked securities (ELS) tied to the Hong Kong H-Index. The move comes roughly 18 months after the FSS concluded its inspections and follows the Financial Services Commission’s (FSC) recent interpretation that administrative fines should be calculated based on the principal investment amount.



According to financial authorities, the FSS conducted inspections between November 2023 and February 2024, targeting major financial firms for potential violations related to the sales of Hong Kong H-Index ELS products. A senior FSS official confirmed, “We are currently proceeding with the necessary steps to impose sanctions, now that the FSC has clarified the fine calculation basis.”



Last month, the FSC’s Legal Interpretation Committee ruled that for financial investment products such as ELS, the term “income, etc.” in the Financial Consumer Protection Act should be interpreted as the principal invested amount. For loans and insurance products, the basis would be the loan amount and the insurance premium, respectively.



Based on this interpretation, potential fines could reach into the trillions of Korean won, given that the principal invested via domestic banks alone amounts to KRW 16 trillion. Although banks have already paid approximately 40% of investor losses—over KRW 1 trillion—as part of a voluntary compensation scheme introduced in March 2024, significant contention is expected as the FSS prepares to impose sanctions on both institutions and individuals.



The five largest banks reportedly earned around KRW 200 billion in fees from selling Hong Kong ELS products, but the new fine standard could result in financial penalties far exceeding that amount. For instance, Shinhan Bank may face hundreds of billions of won in fines due to separate violations involving misleading advertisements for interim loans.



While the banking sector is bracing for impact, the insurance industry is also on alert. If the same principle of using premium income as a basis for fines is applied, the insurance sector could face the largest financial burden across all industries.

 

 

 

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