Ahead of the first disciplinary review related to Hong Kong H-share index equity-linked securities (ELS), for which a penalty surcharge in the 2 trillion won range has been signaled, commercial banks are throwing everything into their defense. The banks are expected to appeal for a reduction in the penalty surcharge by emphasizing the follow-up measures they have carried out so far.
According to the financial authorities on the 18th, commercial banks last week submitted statements to the Financial Supervisory Service requesting a reduction in the penalty surcharge related to the misselling of Hong Kong ELS. At the disciplinary review committee (disciplinary review) to be held this afternoon, KB Kookmin, Shinhan, Hana, NH Nonghyup and Standard Chartered Bank Korea are to present their explanations accompanied by law firms. Woori Bank is excluded because its sales volume was small.
By bank, Hong Kong ELS sales amounts are as follows: ▲ KB Kookmin Bank 8.1972 trillion won ▲ Shinhan Bank 2.3701 trillion won ▲ NH Nonghyup Bank 2.1310 trillion won ▲ Hana Bank 2.1183 trillion won ▲ Standard Chartered Bank Korea 1.2427 trillion won ▲ Woori Bank 41.3 billion won.
If a bank receives a penalty surcharge, it must reflect risk-weighted assets (RWA) at seven times the penalty surcharge. When RWA increases, the common equity tier 1 (CET1) ratio falls and shareholder dividend amounts are also affected. If capital ratios deteriorate, the execution of productive finance also suffers.
Under the enforcement decree of the Financial Consumer Protection Act, revised last month, imposed penalty surcharges can be adjusted by up to 75%. Grounds for mitigation include preemptive prevention and post-incident remediation efforts. If, after a financial incident, a financial company actively compensates financial consumers for damages or faithfully prepares measures to prevent recurrence, a reduction of up to 50% of the base penalty surcharge (or the amount compensated) is possible.
Under the Financial Consumer Protection Act, mitigation is possible if two or more of the mitigation criteria are met at the same time. The banks plan to emphasize the voluntary compensation they have carried out and improvements to sales procedures.
According to the banking industry, the scale of voluntary compensation is as follows: ▲ KB Kookmin Bank 695.9 billion won ▲ NH Nonghyup Bank 252.7 billion won ▲ Shinhan Bank 186.5 billion won ▲ Hana Bank 109.3 billion won ▲ Standard Chartered Bank Korea 99.3 billion won, and the agreement rate has been raised to 96%.
After the disciplinary review, the adversarial procedure, the Securities and Futures Commission, and a vote at a regular meeting will follow to finalize the penalty surcharge. The final scale of the penalty surcharge is expected to be confirmed in the first half of next year.