FSS unveils compensation measures for HK-tied ELS losses

Mar 12, 2024, 10:23 am

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Financial Supervisory Service (FSS) Governor Lee Bok-hyun speaks at a press conference on compensation guidelines for people affected by misleading sales of Hong Kong stock index-tied derivative products by financial institutions at FSS headquarters in Seoul on March 11, 2024./ Source: Yonhap

AsiaToday reporter Choi Jung-ah

“Many sellers of the equity-linked securities (ELS) products were found to have encouraged mis-selling even when the risk of customer losses was pronounced,” Financial Supervisory Service (FSS) Governor Lee Bok-hyun said on Monday. “The FSS has been working extra hard to ensure that the dispute resolution scheme would give reasonable compensation to investors facing unjust losses while upholding the principle of investor responsibility,” he said.

His remarks came during a press conference on compensation guidelines for people affected by misleading sales of Hong Kong stock index-tied derivate products by financial institutions at FSS headquarters in Seoul. The compensation plan by the FSS adjusts the compensation ratio based on various criteria concerning sellers and investors.

The dispute resolution scheme is designed to be more sophisticated and detailed in consideration of the specificity of ELS product sales and investment behavior, while referring to past disputes such as DLF crisis and private equity fund crisis. “Adjustments are made based on investor characteristics, including their experience and knowledge of high-risk investments, and the company’s protection of financially vulnerable groups,” Lee said.

The FSS discovered numerous instances of mis-selling financial products during its inspection period. “Despite heightened risks for customers, financial institutions aggressively promoted ELS sales at the headquarters level, driven by excessive sales targets and key performance indicators,” Lee said. “Additional instances of mis-selling were identified at the individual branches, particularly targeting elderly customers unfamiliar with high-risk derivative products. These included proxy registration, document forgery and intentional distortion of information.”

The financial watchdog will promptly begin its dispute mediation process by selecting representative cases and holding mediation committees starting in April. “We urge your cooperation in the compensation process to mitigate resulting social and economic burdens.”

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