Is It a 'Goryeong Subscriber' or a 'Re-subscriber'... Hong Kong ELS Compensation Likely to Become a Key Issue

Starting January Next Year, Large Losses Expected in Hong Kong ELS
If Losses Occur, Financial Authorities to Inspect Mis-selling and Suitability
If Bank Fault Found, High Possibility of Compensation for Elderly Subscribers
Derivative Product Re-enrollees May Face Difficulties

"I can't just send my father to the bank alone. He lives in Taean, Chungnam, and in February 2021, when he went to open a bank deposit, the bank clerk recommended putting 20 million won into an ELS, saying it would be fine. He said he joined just to get the mere 3.5% interest, but I found out when I visited my hometown last weekend and saw the passbook. By the maturity next year, he won't even get back half of the principal. The bank clerk probably explained, but since he only farmed, when I asked my father, he didn't even know what kind of fund he invested in or that there could be a significant principal loss." (Lee Kyung-jin, 45, office worker living in Seoul, December 4)

If you were sold incompletely, you can get principal compensation

As concerns grow over large-scale losses for investors in Hong Kong H Index equity-linked securities (ELS) starting January next year, financial authorities are reviewing compensation standards, with 'elderly investors' and 'reinvestors' expected to be key issues.

The Financial Supervisory Service (FSS) will conduct a full investigation of investors' product contracts and recordings once investor losses are confirmed starting next month. If it is found that banks engaged in incomplete sales or recommended inappropriate products to customers, compensation must be made. The FSS is currently considering creating guidelines on the standards for such compensation in advance. This is a preparatory measure to swiftly handle dispute resolutions as soon as losses occur.

Once the FSS releases compensation standards, banks will autonomously adjust based on them. If it is proven that consumers were subject to incomplete sales or inappropriate recommendations, banks must refund all or part of the principal.

Within the financial sector, it is believed that elderly investors have a relatively high possibility of receiving compensation if issues like incomplete sales arise. On November 29, FSS Governor Lee Bok-hyun stated, "We must consider whether banks bear any responsibility just because consumers responded 'yes, yes' to dozens of pages of explanations that even I find hard to read." Following this, on December 1, Kim So-young, Vice Chairperson of the Financial Services Commission, raised concerns about sales to elderly consumers, saying, "Elderly people who bought ELS at banks probably found it difficult to understand the structure, and if such cases are frequent, it should be addressed."

Financial authorities also stated they will examine the 'suitability principle' regarding whether it was appropriate to recommend complex ELS products to elderly investors. A representative from a commercial bank said, "The key will be the proportion of elderly investors among Hong Kong ELS products maturing in the first half of next year," adding, "Many ELS investors have surplus funds, so the proportion of elderly investors is quite high."

The scale of loss investors will be record-breaking

However, reinvestors who have previously invested in derivatives including ELS may find it difficult to receive compensation. An FSS official said, "Among derivatives investors, many have made profits from investments so far, and some of them are elderly. For example, some have invested in derivatives for over ten years but suffered losses this time and now claim 'I didn't know anything' or 'I thought it was a deposit.' When investigating incomplete sales and deciding on compensation, this will be taken into account."

Posts on internet communities by Hong Kong H Index investors include statements like, "The bank recommended it saying it was a product that never incurred losses, so don't worry," and "When analyzing investment propensity, a conservative profile came out, and the bank helped check the aggressive profile so I could join the product." Investors are focusing on whether these processes constitute incomplete sales.

A financial sector official said, "The ELS product structure is so complex that many people probably don't even know if they subscribed to an ELS based on the Hong Kong H Index or whether they will incur losses in the first half of next year," adding, "The minimum subscription amount is 5 million won, which is much lower than the 100 million won minimum for the DLF that caused problems three years ago, and since the loss amount is expected to be 3 to 4 trillion won, much larger than the DLF incident, the number of loss investors will be record-breaking."

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