The Financial Supervisory Service on the 28th gave prior notice of about 2 trillion won in total, including a penalty surcharge, to five banks in connection with misselling of equity-linked securities (ELS) tied to the Hang Seng China Enterprises Index (HSCEI). It is the first penalty surcharge in the trillion-won range since the enactment of the Financial Consumer Protection Act in 2021 and the largest ever.
According to financial authorities and the financial sector, the Financial Supervisory Service sent advance notices to each selling bank that day under the supervisory rules on penalty surcharge under the Financial Consumer Protection Act. It notified five banks — KB Kookmin Bank, Shinhan Bank, Hana Bank, NH Nonghyup Bank, and SC First — of the imposition of a penalty surcharge and fines. Woori Bank also sold the products, but its scale was the smallest and it was excluded from sanctions.
The combined amount of the penalty surcharge and fines is said to be about 2 trillion won. With the Financial Supervisory Service putting consumer protection at the forefront, this is seen as a declaration of a strict sanction stance on misselling in the financial sector.
The law allows a penalty surcharge of up to 50% of the "revenue" or an equivalent amount obtained through illegal acts by a financial company. Attention had focused on whether to view revenue as the "sales amount" or "fees," but the Financial Supervisory Service is said to have calculated the penalty surcharge based on the sales amount.
Given the unprecedented penalty surcharge notice, the level of institutional sanctions is also said to correspond to heavy penalties across the board. However, chief executive officers (CEOs), such as bank heads, were excluded from personal sanctions. Since the introduction of the Act on Corporate Governance of Financial Companies in 2018, the main basis for CEO sanctions by the financial authorities has been the obligation to establish internal control standards, but factors such as the courts not recognizing that basis during the earlier losses from derivative-linked funds (DLF) were taken into account.
The Financial Supervisory Service will bring the agenda to a sanctions review meeting on the 18th of next month to begin the sanction process in earnest. The size of the penalty surcharge and the level of institutional and personal sanctions will be finalized by the Financial Services Commission (FSC).