Financial Services Commission Requests Reexamination of 'Hong Kong ELS Sanctions Plan' from Financial Supervisory Service ... First Time in 8 Years Since Samsung Biologics Case

FSC Requests Supplementation of Certain Facts and Legal Interpretations
Conflict Between FSC and FSS Resurfaces

On May 13, the Financial Services Commission (FSC) requested the Financial Supervisory Service (FSS) to re-examine the case related to the misselling of equity-linked securities (ELS) tied to the Hang Seng China Enterprises Index (HSCEI), commonly referred to as Hong Kong H Index ELS. This marks the first time in eight years that the FSC has effectively requested a re-examination from the FSS on a major disciplinary matter, the last being in 2018 regarding the re-audit of accounting standard violations by Samsung Biologics.

According to the FSC on May 13, the agenda regarding the misselling of Hong Kong H Index ELS was tabled at the regular meeting that day, after which the commission requested the FSS to conduct a re-examination.

The FSC stated, "Based on discussions in the agenda review subcommittee regarding the actions to be taken following the inspection results of banks and securities firms related to the misselling of Hong Kong H Index ELS, we have asked the FSS to supplement certain facts and the application of relevant laws and legal principles."

In effect, this means the FSC has determined that it is difficult to accept the FSS’s disciplinary proposal as is. In February, the FSC received the disciplinary proposal for the banking sector from the FSS. At that time, the FSS, through its disciplinary review committee, decided on a total fine of 1.4 trillion won and institutional warnings for five banks: KB Kookmin, Shinhan, Hana, NH Nonghyup, and SC First Bank. However, as the disciplinary review committee's decision has no legal effect, the final level of disciplinary action depends on the FSC’s judgment.

The reason the FSC delayed a conclusion for over three months and requested a re-examination seems to be due to differing opinions regarding the original disciplinary proposal. Within the FSC, there has been a sense that the fine calculated by the FSS is excessive.

In particular, the FSC reportedly took issue with the fact that, after the FSS initially imposed a fine of 1.4 trillion won, the need for further reduction was raised during discussions with the FSC. The FSS's position is that it initially considered a fine of 1.9 trillion won, but lowered it to 1.4 trillion won to reflect the banks’ voluntary compensation efforts, and that it could not reduce the fine further because it lacks the authority for discretionary mitigation.

Moreover, the FSC found itself in a dilemma between the principle of consumer protection and the policy of expanding productive finance in this case. If the fine were finalized as originally proposed by the FSS, there were concerns that the banking sector’s capital buffers would be weakened, undermining the momentum of the productive finance policy promoted by the Lee Jaemyung administration. On the other hand, as the Hong Kong ELS misselling case is the first major case since the Financial Consumer Protection Act was implemented in 2021, there was also concern that setting the fine too low could send the wrong signal to the market.

Recently, the repeated losses by financial authorities in administrative lawsuits against financial companies also appears to have influenced the FSC’s decision to request a re-examination.

An FSC official stated, "As soon as the action plan is supplemented, we will review it promptly and thoroughly and make a decision."

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