South Korean bankers misrepresented risky China-linked notes to retirees, financial watchdog says
- A probe uncovered poor regulatory compliance and systematic failures in the sale of complex financial products linked to the Hang Seng China Enterprises Index
- Losses from the popular notes are seen totalling 5.8 trillion won (US$4.4 billion) if the index remains at the current level, the Financial Supervisory Service said
South Korea’s financial watchdog said it found a range of instances where some of the country’s largest brokers misrepresented risky China-linked structured products to retail investors, many of whom are retirees.
An investigation into five banks and six brokerages uncovered poor regulatory compliance and systematic failures regarding the sale of complex financial products linked to the Hang Seng China Enterprises Index, the Financial Supervisory Service said on Monday. Losses from the popular notes are seen totalling 5.8 trillion won (US$4.4 billion) this year, if the index remains at the current level, it said.
Regulators will take further steps such as imposing fines, taking into account how much compensation the financial firms provide to customers and efforts made in regaining their confidence, it said.
The announcement follows a months-long investigation by the FSS into some of the nation’s most prominent retail lenders, including Kookmin Bank and Shinhan Bank and brokerages such as Korea Investment & Securities and Mirae Asset Securities to see if they had violated any rules or misrepresented the high-risk equity-linked securities.
South Korea is among the world’s largest markets for the structured products, which have been readily available at retail channels such as local banks and especially popular among the nation’s retirees. In 2021, the China-linked ELS notes were sold with a three-year maturity, with about 22 per cent of the accounts now held by people ages 65 or older. The HSCEI traded well above 12,000 then, but has since slumped, losing more than half its value from a 2021 peak on concerns about the growth outlook of Asia’s largest economy amid growing US-China tensions. The index finished at 5,656.72 on Friday.
Of the outstanding balance worth 18.8 trillion won in HSCEI-linked notes as of December, about 1.2 trillion won was lost during the first two months of this year, clocking an accumulated capital loss rate of 54 per cent, the FSS said.