Commercial Banks with Incomplete Sales Hit with 10 Billion KRW in Fines Last Year... Sixfold Increase from Previous Year

FSS Imposes 27 Sanctions on Commercial Banks Last Year

Fines Increase Sixfold Compared to Previous Year

KEB Hana Bank Faces Largest Institutional Fine of 3.1 Billion KRW

[Asia Economy Reporter Jo Gang-wook] Commercial banks, which faced heavy criticism for incomplete sales, paid nearly 10 billion KRW in fines last year. This amount is nearly six times higher than the previous year. Especially, with the recent large-scale redemption suspension incidents involving overseas interest rate-linked derivative-linked funds (DLF) and Lime Asset Management's private equity funds, sanctions have been further strengthened, raising concerns that a fine bomb may be imposed this year.

According to the Financial Supervisory Service (FSS) on the 9th, the total number of sanctions imposed on major domestic banks last year was 27 cases. Including those under review by the Financial Intelligence Unit under the Financial Services Commission, the total amount of fines imposed is estimated to reach 10 billion KRW. This is about six times the 1.7 billion KRW imposed the previous year. Notably, fines alone in December last year amounted to a staggering 9 billion KRW.

The commercial bank that received the largest institutional fine was KEB Hana Bank. Hana Bank was fined 3.16 billion KRW and received an institutional warning last month for incomplete sales of trust-type short straddle exchange-traded notes (ETNs). Two related employees were also reprimanded.

According to the sanction disclosure, 140 branches including the Mia Sageori branch of Hana Bank promoted a specific short straddle ETN product worth 35.9 billion KRW to 354 general investors from November 2017 to September 2018. During the investment solicitation and sales process, the investor suitability analysis was conducted again, and investors initially classified as 'aggressive investor or below' were ultimately reclassified as 'aggressive investors.' Furthermore, the investor information supporting this classification was not verified or maintained through signatures or seals.

The FSS pointed out that Hana Bank produced and distributed asset management explanatory documents that did not include explanations of the main content, structure, and characteristics of the short straddle ETNs. It was also problematic that employees who were not derivative investment solicitation advisors recommended investments in derivative-linked securities (ELS) trust contracts.

In the same month, KB Kookmin Bank and Shinhan Bank were fined 2.5 billion KRW and 3 billion KRW respectively. Kookmin Bank was caught promoting specific money trust products via text messages to over 100 customers at four branches from 2016 to last year. It was also revealed that from June 2016 for two years, some employees without derivative investment solicitation qualifications recommended investments in ELS and exchange-traded funds (ETFs) trusts at certain branches. There was also an incomplete sales case violating the suitability principle during the sale of ELS trusts to investors in February 2018.

Shinhan Bank violated regulations by promoting trust products via text messages to about 10,000 customers from May 2016 to June last year. At five branches, unqualified personnel for derivative investment solicitation were caught recommending investments in ELS trust contracts.

In the market, concerns are growing that the financial authorities may impose a fine bomb this year as they tighten controls on incomplete sales following incidents such as KIKO, Lime, and DLF.

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