As Financial Supervisory Service Governor Lee Chan-jin pledged a swift sanction process over the Homeplus Co. situation, the first sanctions review committee on allegations of misselling of asset-backed short-term bonds (ABSTB) is expected to be held within this year. If misselling is confirmed, there is a possibility that securities firms will be hit with penalty surcharges in the tens of billions of won, potentially reaching the 100 billion won range.
According to financial authorities and the investment industry on the 23rd, the Financial Supervisory Service plans to hold the first sanctions review committee within this year on allegations of misselling of Homeplus Co. short-term notes. Earlier, on the 21st, at a National Policy Committee Homeplus Co. pending-issues meeting at the National Assembly, Governor Lee said, "We will proceed with the sanction process transparently and swiftly regarding violations."
The Financial Supervisory Service (FSS) recently completed inspections of securities firms suspected of misselling, including Hana Securities and Hyundai Motor Securities. Based on the inspection results, the case will proceed through drafting the inspection report, internal departmental deliberation, review and coordination by the Sanctions Review Bureau, and prior notice of proposed measures, before being placed on the agenda of the sanctions review committee. This usually takes about one to five months. A senior FSS official said, "Since internal review and analysis are needed after the end of the inspection, we are proceeding with the related procedures," adding, "If it is confirmed to be subject to sanctions, we expect to refer it to the sanctions review within this year."
Hana Securities and others face allegations of misselling for not sufficiently explaining the risks and structure of Homeplus Co. short-term notes when selling them to individual investors. In particular, with Homeplus Co. issuing and selling the notes right up until just before filing for corporate rehabilitation, investors claim they were not informed of liquidity deterioration or credit risks.
If the misselling allegations are confirmed, the Financial Consumer Protection Act allows not only institutional and employee sanctions but also the imposition of a penalty surcharge. The penalty surcharge is expected to range from tens of billions of won to around 100 billion won.
Under the Financial Consumer Protection Act, if a financial product seller violates sales principles such as the duty to explain or the prohibition on unfair business practices and improper solicitation, up to 50% of revenue from the violation can be subject to a penalty surcharge. Given that individual investors' bond investments are known to be about 177.7 billion to 400 billion won, up to half of that—up to 200 billion won—could be subject.
However, not all of that amount is actually imposed as a penalty surcharge. Under supervisory regulations, the base penalty surcharge is calculated by applying a materiality assessment to the statutory ceiling. Materiality is categorized as ▲ very material (65–100%) ▲ material (30–64%) ▲ low materiality (1–29%). The final penalty surcharge is then determined by reflecting aggravating or mitigating factors such as efforts to remedy investor losses and the performance of consumer protection systems. Mitigation is allowed within up to 50% of the base penalty surcharge.
An investment industry official said, "The outcome of these sanctions will serve as a precedent to gauge the scope of responsibility and sanction standards for similar bond issuance and sales cases going forward," adding, "In particular, because it could have a considerable impact on the JoongAng Group corporate bond issuance and sales case, the industry is closely watching the results."