DLF investors get up to 80% back

Record compensation has been awarded to investors in a batch of money-losing derivative-linked products, with some getting almost everything back.

The Financial Supervisory Service (FSS) has ordered Woori Bank and KEB Hana Bank to cover up to 80 percent of losses from investments in derivative-linked funds (DLF) tracking German 10-year treasury bonds and the swap rates for the British pound and U.S. dollar.

A total of 276 complaints were filed with the FSS, and they were categorized into six separate buckets with recoveries ranging from 40 percent to 80 percent.

The harshest penalty was levied in a case where a bank sold a DLF investment to a 79-year-old client with dementia and hearing impairment.

Even though the senior had no experience with investment, the bank categorized the person as an “aggressive investor.”
“The bank asked the client to sign a document that granted consent for high risk and potentially money-losing investments without proper explanation,” the FSS said in a statement. “It is not likely that all the risks are understood by the person, considering health conditions and experience.”

The ruling for 75 percent compensation was applied to a case where a banker misled a woman in her 60s to believe that the DLF product has zero percent likelihood of loss. The woman was a novice investor, but a bank arbitrarily decided that she had an appetite for aggressive investment.

The FSS declined to specify the name of the bank, citing its rules.

The regulator also noted that the two banks lack internal oversight systems to assess the risk of investment products.

The two banks will likely comply with the decision since the CEOs have said that they will follow the regulator’s decision. Both banks vowed to improve internal systems to prevent a recurrence of so-called mis-selling.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]