The financial authorities have set a goal of finalizing sanctions against banks over the large losses from Hong Kong H-index equity-linked securities (ELS) at next month's regular meeting. They concluded it is hard to delay sanctions any longer and that the longer the decision takes, the more the credibility of the sanction process could be undermined.
According to the financial authorities on the 31st, the Financial Services Commission will convene an agenda subcommittee this week on the ELS sanctions plan. As there was no regular meeting this month due to vacation schedules, this will be the final review by standing Commissioners who will decide the level of mitigation.
The Financial Services Commission is deliberating until the last minute on the level of penalty surcharge in the ELS sanctions plan. If Commissioners do not reach consensus at this week's agenda subcommittee, it plans to convene an additional subcommittee before the last week of September's regular meeting.
Earlier, the Financial Supervisory Service submitted to the Financial Services Commission a sanctions plan imposing a total of 1.4 trillion won in penalty surcharges on five banks that sold Hong Kong ELSs in February. However, in May the Financial Services Commission returned the agenda to the Financial Supervisory Service, saying some facts and applicable statutes and legal theories required supplementation, and the penalty surcharge was lowered to about 600 billion won before being resubmitted to the Financial Services Commission.
Banks are strongly arguing for additional mitigation. They say the initial six-month guidance period after the Act on the Protection of Financial Consumers took effect should not be reflected in calculating the penalty surcharge. Some banks booked the penalty surcharge as a provision in their accounting ledgers; if the surcharge is reduced, it will be reversed as other income and the like.
Banks cite as grounds the fact that the Financial Services Commission previously approved a no-action opinion to the effect that during the first six months after the Act on the Protection of Financial Consumers was enacted, supervision would focus on guidance rather than sanctions. The recent string of losses by the financial authorities in lawsuits related to sanctions on financial firms is also cited as a reason for cautious deliberation on mitigation.
However, with several rounds of mitigation already carried out, some say further reductions could weaken the effectiveness of the sanctions.