Financial Authorities Hold Joint ELS Meeting... Discussing Measures to Address Investment Losses

Inspection of ELS Sales Status Based on Financial Sector H Index

Lee Bok-hyun, Governor of the Financial Supervisory Service, is speaking at the Banking Sector Livelihood Financial Support Meeting held at the Korea Federation of Banks in Jung-gu, Seoul on the 21st. Photo by Jo Yong-jun jun21@

The financial authorities held a joint inspection meeting on ELS (Equity-Linked Securities) on the 22nd. They reviewed the sales status of ELS based on the Hong Kong H Index, which has raised concerns about investor losses due to the recent sharp decline in the index, and discussed response measures regarding the possibility of investor losses. The meeting was chaired by Sehoon Lee, Secretary General of the Financial Services Commission. Attendees from the Financial Services Commission included the heads of the Banking Division, Consumer Policy Division, Capital Market Division, and Asset Management Division. From the Financial Supervisory Service, the Deputy Director of Consumer Protection, the Director of Banking Inspection Division 1, the Director of Financial Investment Inspection Division 1, the Director of Capital Market Supervision Division, and the Director of Dispute Mediation Division 3 participated.

At the meeting, the sales status of H Index-based ELS across the entire financial sector was reviewed. H Index-based ELS were mainly sold to individual investors through bank trusts (ELT) or direct sales by issuing securities companies (ELS), with banks accounting for a large portion of sales. As of November this year, out of the total outstanding sales balance of 19.3 trillion KRW for H Index-based ELS, 15.9 trillion KRW, or 82.1%, was from banks.

The problematic products are mainly ELS issued since early 2021 when the H Index was at its peak. Considering the recent trend of the H Index, there is a possibility of investor losses starting early next year when the maturities of these issuances arrive.

Since the sharp drop in the H Index in the fourth quarter of last year, the financial authorities have guided ELS sellers based on the H Index to establish customer response systems in preparation for the possibility of investor losses. The Financial Supervisory Service has been conducting on-site and written investigations since the end of November this year on 12 major sellers, focusing on the ELS sales decision-making process, incentive policies, and branch sales processes. The banks under investigation are KB Kookmin, NH Nonghyup, SC First, Shinhan, and Hana. The securities companies are KB Kookmin, NH Nonghyup, Mirae Asset, Samsung, Shinhan, Kiwoom, and Korea Investment & Securities.

The financial authorities plan to establish and operate an 'H Index ELS Response Task Force' within the Financial Supervisory Service to respond organically to consumer complaints and dispute mediation, inspections, and measures against selling financial companies in case investor losses occur in H Index-based ELS. The TF team leader has been appointed as the Deputy Director in charge of banking. It will be composed of the Banking and Financial Investment Inspection Divisions, Capital Market Supervision Division, and Dispute Mediation Division.

Secretary General Lee Sehoon urged, "Please make efforts to communicate with the market and ensure that necessary information is sufficiently provided so that unnecessary anxiety does not spread in the financial market regarding H Index-based ELS," and added, "Please keep in mind not to undermine the principle of investor self-responsibility in future responses."

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