The Financial Supervisory Service imposed about 3 billion won in fines on domestic brokerages that sold Hong Kong equity-linked securities (ELS). It found that proper procedures were not followed in the sales process, including violations of the recording requirement.

Activists from Financial Justice Solidarity, the People's Livelihood and Economy Committee of MINBYUN, and People's Solidarity for Participatory Democracy (PSPD) hold a press conference in front of the Board of Audit and Inspection in Jongno-gu, Seoul, on the 15th, petitioning for a public audit related to the Hong Kong ELS incident. /Courtesy of News1

According to financial authorities on the 1st, the Financial Supervisory Service (FSS) recently imposed fines on major brokerages as a measure for the misselling of ELS.

KB Securities received the largest fines, totaling 1.68 billion won. In addition, NH Investment & Securities was fined 980 million won, Mirae Asset Securities 140 million won, Korea Investment & Securities Co. 110 million won, and Samsung Securities 100 million won.

The Financial Supervisory Service (FSS) pointed out that procedures in the sales process were not observed. When selling derivative-linked securities to an unsuitable investor or a general investor age 70 or older, or when selling high-risk financial investment products to an individual general investor, a broker-dealer must record the sales process.

However, eight KB Securities branches sold H-index ELS to 20 individual general investors over about two years and 10 months starting in 2021 and did not record the process. The sales at the time totaled about 1.05 billion won.

Also, by using employees' mobile phones to complete investors' online ELS subscription procedures, the company did not record the sales process to investors. It was also noted that, during the cooling-off period in the course of selling high-risk financial investment products, the company failed to warn of investment risks.

NH Investment & Securities did not record the sales process when explaining the product's profit-and-loss structure and expected rate of return, and when sending ELS investment advertising messages, it omitted investment risks such as the possibility of principal loss.

Korea Investment & Securities Co. violated the ban on improper solicitation by continuing to recommend entering into a contract even after the consumer expressed an intention to refuse ELS investment. Mirae Asset Securities and Samsung Securities were cited for failing to fulfill the obligation to record the sales process through online subscriptions.

Meanwhile, with the fines imposed, sanctions by financial authorities on Hong Kong ELS are expected to gain full momentum going forward.

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