FSC Imposes Record KRW 362 Billion in Fines on 7 Banks for Hong Kong ELS Mis-Selling

KB Kookmin Bank fined KRW 172.3 billion, followed by Hana at KRW 92.5 billion and NH NongHyup at KRW 40.2 billion
Total monetary sanctions of KRW 374.6 billion, including six securities firms
Guidelines on explaining investment products to take effe

The Financial Services Commission (FSC) has finalized its decision to impose a total of KRW 362 billion in administrative penalties on seven banks over the mis-selling of equity-linked securities (ELS) tied to the Hong Kong H-share Index (Hang Seng China Enterprises Index, HSCEI). Including sanctions against six securities firms, the total amount of administrative penalties and fines comes to KRW 374.6 billion, the largest monetary sanction ever imposed by the FSC. The FSC’s sanctions have concluded, three years after the Financial Supervisory Service (FSS) began its inspection, but banks including KB Kookmin Bank may still file administrative lawsuits over concerns about potential accusations of breach of trust.

The FSC said on November 4 that it had held a regular meeting and finalized the sanctions against banks and securities firms that violated the Financial Consumer Protection Act (FCPA) in the course of mis-selling ELS tied to the Hong Kong H-share Index.

The seven banks targeted for sanctions are KB Kookmin Bank, Shinhan Bank, Hana Bank, NH NongHyup Bank, Standard Chartered Bank Korea, Woori Bank and Suhyup Bank. They were fined a total of KRW 361.96 billion in administrative penalties and KRW 1.778 billion in administrative fines.

KB Kookmin Bank received the largest administrative penalty, at KRW 172.3 billion. It was followed by Hana Bank at KRW 92.5 billion, NH NongHyup Bank at KRW 40.2 billion, Shinhan Bank at KRW 38.7 billion, Standard Chartered Bank Korea at KRW 17.9 billion and Woori Bank at KRW 300 million. Administrative fines of KRW 1.3 billion were imposed on KB Kookmin Bank, KRW 420 million on NH NongHyup Bank, KRW 42 million on Suhyup Bank and KRW 16 million on Standard Chartered Bank Korea.

The FSC determined that the banks violated their duty to explain by, among other things, omitting the results of yield simulations during ELS sales. It also found that they violated the suitability principle by failing to take some financial consumers' information into account.

Six securities firms—Mirae Asset Securities, KB Securities, Shinhan Securities, NH Investment & Securities, Korea Investment & Securities and Samsung Securities—were fined a total of KRW 9.282 billion in administrative penalties and KRW 1.612 billion in administrative fines. The firms were found to have violated their duty to explain, including by omitting important information about the risk ratings of investment products.

Korea Investment & Securities accounted for most of the administrative penalties levied on the securities firms, receiving KRW 9.245 billion. It was followed by NH Investment & Securities at KRW 23 million, Shinhan Securities at KRW 10 million and Mirae Asset Securities at KRW 4 million. Samsung Securities received the largest administrative fine, at KRW 1 billion, followed by Mirae Asset Securities and KB Securities at KRW 300 million each, and Korea Investment & Securities at KRW 12 million.

The administrative penalties and fines imposed on the banks and securities firms total KRW 374.632 billion. This is the largest monetary sanction ever imposed by the FSC.

The amount of the administrative penalties was reduced several times before it was finalized. The FSS initially calculated the penalties at about KRW 4 trillion, but the amount was successively cut to KRW 2 trillion by the sanctions review committee in November last year, KRW 1.4 trillion by the committee in February this year, and around KRW 600 billion at an ad hoc committee meeting in June, before being reduced to the KRW 360 billion range. In February, the FSC returned a proposed sanction package totaling KRW 1.4 trillion, requesting that certain facts and the applicable laws and legal reasoning be supplemented. The FSS subsequently recalculated the penalties at around KRW 600 billion and resubmitted the proposal to the FSC, which made further reductions during its review.

The FSC said it conducted several rounds of deliberations because the sanctions involved a large number of financial consumers and marked the first case in which major financial institutions were held accountable for violating the FCPA. An FSC official said, "This decision makes clear that financial companies will face strict accountability under the law and principles for violations of the FCPA, including mis-selling. We will continue to impose sanctions swiftly and rigorously for FCPA violations, and actively pursue the recovery of ill-gotten gains through administrative penalties."

In addition, the FSC plans to draw up guidelines on explaining investment products and put them into effect in the first quarter of next year to strengthen consumer protection. It also plans to actively participate in the National Assembly's bill review process to ensure the swift passage of amendments to the FCPA, including provisions to establish a financial consumer protection principle requiring financial companies to conduct business in ways that serve consumers' best interests.

This content was produced with the assistance of AI translation services.