Financial Supervisory Service to Initiate Dispute Mediation for German Heritage Fund This Month

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[Asia Economy Reporter Park Jihwan] Financial authorities plan to initiate dispute mediation this month for investors in the 'Deutsche Heritage Derivative Linked Securities (DLS)' who experienced a large-scale redemption suspension incident.

According to financial authorities on the 16th, the Consumer Protection Department of the Financial Supervisory Service (FSS) is pushing to hold a dispute mediation committee within the year following the confirmation of sanctions against Shinhan Financial Investment, the main distributor of the Deutsche Heritage fund.

The FSS previously imposed sanctions on Shinhan Financial Investment on the 2nd after a comprehensive and sectoral audit revealed violations of the prohibition on unfair solicitation during the sale of the Deutsche Heritage fund. The FSS judged that Shinhan Financial Investment should have informed customers that the Deutsche Heritage DLS product carried higher risks than typical project financing (PF) loans and that there were uncertainties in principal and interest repayments due to delays in real estate development permits and unsold units, but instead sold it as if repayment was guaranteed.

The total sales amount of Deutsche Heritage DLS across the financial sector is approximately 530 billion KRW, with outstanding amounts reaching 500 billion KRW. Among these, Shinhan Financial Investment's sales amount to 390.8 billion KRW, with 379.9 billion KRW suspended from repayment, making it the largest scale.

The FSS plans to select representative types of damage cases and, after going through the subcommittee, decide on specific compensation ratios. Compensation ratios will be applied considering whether the suitability principle was violated and the investment experience of each investor, allowing for voluntary adjustments according to the subcommittee's compensation standards.

Within the financial sector, difficulties are anticipated during the dispute mediation process for Deutsche Heritage DLS due to its structure of investing in overseas assets, making it hard to verify facts at the time of contract signing. Currently, the FSS is known to lean towards compensation for damages rather than contract cancellation (full principal refund). On the other hand, affected investors are demanding contract cancellation with full principal refund, leading to expectations that dispute mediation will not be easy.

An FSS official said, "The goal is to resolve the Deutsche Heritage DLS dispute mediation within the year," adding, "Although the official date has not been set yet, considering the notification to parties and scheduling of committee members, it is expected to take place in the last week."

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