Hong Kong ELS Subscribers File Public Audit Request Against Financial Authorities on the 15th

As a large-scale loss incident involving Hong Kong H-Index-based Equity-Linked Securities (ELS) unfolds, subscribers are filing a public interest audit request with the Board of Audit and Inspection against financial authorities. There is a precedent from the 2019 banking sector Derivative-Linked Fund (DLF) incident where the Board of Audit accepted an audit request, raising the possibility of corrective measures depending on the audit results.

원본보기 아이콘

Civil organizations including the Financial Justice Solidarity, People's Solidarity for Participatory Democracy, and the Lawyers for a Democratic Society (Minbyun) announced that they will file a public interest audit request with the Board of Audit on the 15th regarding the Hong Kong H-Index-based ELS. The targets are the Financial Services Commission and the Financial Supervisory Service. This is because the financial authorities had the duty to manage and supervise the sale of ELS but failed to properly fulfill it.

Kim Deuk-ui, the executive director of Financial Justice Solidarity, stated that if the financial authorities' repeatedly declared "constant monitoring" had been in operation, the damage could have been reduced. He added, "If the supervision of banks had been properly conducted, illegal activities could have been identified during the ELS sales process, and preemptive measures could have been taken when the volatility of the Hong Kong H-Index increased."

[Image source=Yonhap News]

원본보기 아이콘

The "constant monitoring" they referred to means the "High-Risk Product Investor Risk Inspection Meetings" that the Financial Services Commission promised to regularize after the 2019 DLF incomplete sales incident. These meetings regularly manage the concentration of high-risk product sales by financial companies and the potential losses to investors. However, it is known that only three meetings were held over four years from 2020 to last year.

The civic groups also claimed that the financial authorities neglected monitoring of high-risk product sales. As one of the measures to protect financial consumers after the DLF incident, the Financial Supervisory Service announced it would strengthen mystery shopping, where investigators pose as customers to visit financial companies and evaluate the product sales procedures. However, since the start of Hong Kong H-Index ELS sales in 2021 until now, mystery shopping has been conducted only once.

Similar to the DLF incident, if the Board of Audit accepts the public interest audit, various measures may be taken depending on the audit results. After the public interest audit request in November 2019, the Board of Audit began a full audit the following year. On July 1, 2021, it audited the operation status of financial supervisory organizations including the Financial Supervisory Service over the course of a year. The Board of Audit announced, "When the Financial Supervisory Service identifies cases of incomplete sales by financial institutions, it requires the head of the Financial Supervisory Service to take appropriate measures." In addition, a total of 45 cases were finalized as audit results, including 3 disciplinary actions (5 people), 18 warnings (17 people), and 24 notifications.

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.