SEOUL — Following an investigation into the possible mis-selling of high-risk financial products, two major South Korean banks have begun compensating retail investors for losses incurred from equity-linked securities (ELS) tied to Hong Kong stocks. Shinhan Bank and Hana Bank have provided compensation to some investors, with additional institutions expected to follow suit.
According to Yonhap News Agency, the compensation initiative comes in the wake of a probe by financial authorities into the sale of these ELS products, which are linked to Chinese shares listed on the Hong Kong bourse. The investigation revealed concerns over potential illegal activities and the adequacy of risk disclosure to investors.
Other banks, including KB Kookmin, Woori, and HN Nonghyup, are reportedly developing their own compensation plans for investors affected by the Hong Kong-tied ELS products. KB Kookmin Bank has indicated that negotiations will commence with investors who have closed their accounts since the end of last year to ascertain the extent of their financial losses.
On average, investors can expect to recoup about 40 percent of their losses from these products, which have seen their value significantly diminish following a steep decline in the Hang Seng China Enterprises Index since its peak in 2021. The Financial Supervisory Service (FSS) has expanded its investigation into the matter, scrutinizing banks and brokerages for possibly misleading investors about the risks associated with ELS products.
The FSS has pledged to impose penalties on any financial institutions found to have engaged in illegal sales practices, emphasizing the importance of regulatory oversight and investor protection. Losses linked to the ELS products sold by six local banks were estimated at 1.9 trillion won, representing 50 percent of the total investment of 3.9 trillion won, as of March 22 this year.