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Korea's financial regulator issues 2 trillion won in penalties to five banks for ELS mis-selling

Published: 28 Nov. 2025, 19:51 Updated: 30 Nov. 2025, 17:07

Representatives of a victims’ group for investors in equity-linked securities tied to the Hang Seng China Enterprises Index hold a rally in front of NH NongHyup Bank in central Seoul on March 15, 2024, calling for full compensation of principal losses and denouncing what they described as a large-scale financial fraud. [YONHAP]

Korea’s financial regulator has sent preliminary notices of penalties totaling around 2 trillion won ($1.36 billion) to five banks for the alleged mis-selling of equity-linked securities (ELS) tied to Hong Kong’s Hang Seng China Enterprises Index (HSCEI). This marks what could become the first multitrillion-won fine since the Financial Consumer Protection Act took effect in 2021.

The Financial Supervisory Service (FSS) sent the notices on Friday to KB Kookmin, Shinhan, Hana, NH NongHyup and Standard Chartered Bank. Woori Bank, which also sold the products, was excluded due to its lower sales volume. The combined amount of fines and penalties is expected to reach about 2 trillion won.

The sanctions stem from massive losses investors suffered in HSCEI-linked ELS products last year. These financial instruments result in principal losses if the underlying asset falls below a certain threshold — typically around 50 percent of its initial value — known as the “knock-in” level.

The HSCEI had risen to 12,230 in February 2021 but plunged to 5,481 by January 2024, just as many three-year products matured, amplifying losses. According to the FSS, the five banks sold a total of 15.9 trillion won worth of these products. As of September last year, 10.4 trillion won in principal had been lost in confirmed accounts, with total losses amounting to 4.6 trillion won.

The Financial Supervisory Service's headquarters in Yeouido, western Seoul [YONHAP]

The FSS investigated whether banks had properly assessed customers’ investment goals, financial status and experience before signing them up, and whether they clearly explained the characteristics and risks of the products. Many of the affected investors were in their 60s, with some in their 80s and 90s, raising criticism over how the products were marketed to elderly customers.

Under the Financial Consumer Protection Act, the maximum administrative fine is 50 percent of the profits gained through illegal acts — or a comparable amount such as transaction volume. A key point of contention is whether this “profit” should be defined by total sales or only the commissions earned. The FSS is said to have calculated fines based on total sales volume.

However, bank CEOs were excluded from individual disciplinary action, reportedly in consideration of past court rulings that did not uphold sanctions against chief executives.

The FSS plans to convene a sanctions review committee on Dec. 18 to begin formal disciplinary proceedings. The standard process includes notification, review, hearing, penalty decision and final notice, with the Financial Services Commission’s Securities and Futures Commission giving final approval.

“We will confirm the details and make a strong case, emphasizing our efforts to offer voluntary compensation,” a banking official said.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
BY KIM SEON-MI [[email protected]]