[The Editors' Verdict] Hong Kong ELS: Settle Voluntary Compensation and End the Embarrassment Quickly

The dispute over the massive losses from the Hong Kong H Index equity-linked securities (ELS) is truly embarrassing.

Banks have already experienced the overseas interest rate-linked derivative-linked fund (DLF) and private fund incidents back in 2019, yet they are once again being criticized for mis-selling. This is the result of indiscriminately selling financial products solely for commission profits without considering whether the products were suitable for customers or whether customers properly understood the products. Customers are the foundation of business and profits, so neglecting them is tantamount to betrayal. It has been over ten years since the term "predatory finance" emerged right after the 2008 global financial crisis, yet such behavior still persists.

While there may be some unfair cases among investors, it is believed that a significant number either made profits by investing multiple times in ELS or were aware of the potential losses of ELS. There is a principle of "investor self-responsibility," and it is unsightly to see people taking to the streets each time such large-scale loss incidents occur, claiming "I didn't know." If they truly did not know about the possibility of losses in ELS, it would be nothing but ignorance lacking even the basic financial common sense of "High Risk High Return" and "Low Risk Low Return." The interest rates are much higher than deposits, so the risks cannot be the same.

Regardless of any false equivalence arguments, this time both sides deserve criticism.

On the 11th of last month, the Financial Supervisory Service (FSS) announced a dispute mediation guideline related to the Hong Kong H Index ELS and pressured financial companies to voluntarily compensate. Since there are a total of 400,000 accounts based on sales balance, if all of these go to the FSS Dispute Mediation Committee or lawsuits, the socio-economic costs would be too great.

Initially, the banking sector responded somewhat negatively with arguments such as "We have all the consent documents to ensure no problems when customers subscribed, so banks are likely to win if it goes to court," and "Following the supervisory authority's dispute mediation guideline uniformly could imply breach of trust." However, they recently held board meetings one after another and decided to voluntarily compensate according to the FSS dispute mediation guideline.

On the other hand, some investors are still resisting. They have held rallies in front of the FSS and bank headquarters. At the 4th rally of ELS subscribers held on the 29th of last month, statements such as "Compensate 100%" and "Reject the voluntary mediation plan that is not full compensation" were made one after another. Yang Jeong-sook, a lawmaker from the Reform New Party who attended the rally, said, "This compensation plan is even a step backward compared to the compensation plan during the 2019 overseas interest rate-linked derivative-linked fund (DLF) loss incident," demanding greater compensation.

The ELS subscribers' group plans to individually protest at campaign venues of candidates in each region during the general election campaign period and hold a 5th rally after April 10. It appears they intend to appeal to politicians conscious of votes and continue to politicize the issue through rallies, urging a political resolution.

From a reasonable and common-sense perspective, the financial authorities have done all they can. The FSS may hold a representative case dispute mediation committee, but since the dispute mediation guideline has already been announced and accepted by the banking sector, it would be unnecessary. If investors still resist, they can file individual lawsuits.

It would be better to abandon the vain idea that "if you throw a tantrum, you can get more compensation." Politicians should also refrain from blindly following the crowd.

I hope this embarrassing ELS incident ends quickly. And I ask banks to ensure that such incidents never happen again in the future.

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