[ELS Pinset Solution]② "High returns mean high risk responsibility... Government bailout signals danger"

Primary Responsibility for Large-Scale Loss Lies with Investors Themselves
Over 90% of Hong Kong ELS Subscribers Are Rejoining, Not Initial Investors

"The re-subscription rate for Hong Kong equity-linked securities (ELS) reaches 90%. Once investors see profits, they keep reinvesting repeatedly."

Most financial investment experts consider ELS to be high-risk derivative products unsuitable for individual investors and believe policy changes are necessary. However, they emphasize that responsibility for existing investments lies with the investors themselves. The fact that most ELS subscribers are re-subscribers rather than first-time investors also played a role in the experts' objective analysis.

According to the recent sales status of Hong Kong H-index-based ELS by age and channel for individual investors announced by the Financial Supervisory Service, only 8.6% (9.2% in banks, 7.7% in securities firms) are first-time investors subscribing to ELS products. More than 90% of investors are re-subscribers who have previously invested in ELS.

Professor Seo Byung-ki of the Department of Management Science at UNIST said, "Some customers may claim incomplete sales, but considering the high re-subscription rate by investors familiar with this product, it is hard to say that customers had a low understanding of the product," adding, "The primary responsibility for investment lies with the individual."

This means that regardless of the fault of financial companies or authorities, the primary responsibility for investment outcomes rests with the investors themselves.

Hwang Se-woon, a research fellow at the Korea Capital Market Institute, said, "ELS is not a fraudulent product but a high-risk product, and except for cases of incomplete sales, the final responsibility for investment lies with the investor," adding, "There are risky products and safe products in the market, and the choice is up to the individual. High returns come with corresponding risks."

Seo Yoo-seok, chairman of the Korea Financial Investment Association, said, "Unlike the Lime or Optimus cases, this Hong Kong ELS product itself is neutral and was not sold fraudulently," adding, "Whether investments are repeated and the investment experience should be sufficiently considered for detailed judgment."

Experts believe that the recent ELS incident was due to a failure in risk management, but investors were aware of the risks such as principal loss. ELS has been introduced in the Korean market for 20 years, and ELS reinvestors have experience earning profits through this product in the past.

An institutional investor from Institution A said, "ELS has been sold in Korea for 20 years," adding, "Since incidents repeatedly occur, it is necessary to strictly distinguish who should be rescued." He said, "More than 90% of investors repeatedly invested because of high returns, and among them are so-called 'professional speculators.' If elderly or first-time investors are not filtered out for rescue, it could send the wrong signal that the government will bail out investors when incidents occur."

An institutional investor from Institution B emphasized, "The final investment decision is clearly the investor's responsibility, whether institutional or individual," adding, "If you invested with expectations of high returns, you must take responsibility for the results." He said, "Unlike manufacturing, the benefits of financial products are determined in the future, not at the time of transaction, and since sellers and buyers trade based on trust and reputation, there is always a risk that the product may not meet expectations. If investors' moral hazard of expecting bailouts becomes widespread, it will stifle the development of diverse and innovative financial products, ultimately increasing the cost of financial products and transferring the burden to investors."

Meanwhile, the Financial Supervisory Service is currently conducting on-site inspections of sales companies. The authorities are also considering preparing compensation standards. Even if incomplete sales are confirmed, the compensation amount is expected to vary depending on the sales process and investor characteristics. Previously, in cases of incomplete sales related to derivative-linked funds (DLF), Lime, and Optimus, compensation was set at 40-80% of the loss amount. In the DLF compensation ratio guidelines, an additional 5 percentage points were added for those aged 65 and over, and 10 percentage points for those aged 80 and over.

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