[Why&Next] Disappearing ELS at Bank Counters... Concerns Over Consumer Choice Restrictions

Woori Bank Continues Selling ELS
"To Protect Consumer Investment Product Choice...
Limited to Experienced Staff and PB Counters"

As the large-scale loss incident involving Hong Kong H-Index-based equity-linked securities (ELS) continues, banks have begun to halt the sale of related products. This comes amid calls from political circles, civil society, and financial authorities to ban banks from selling high-risk financial products such as ELS. However, the industry is concerned that such drastic measures could restrict financial consumers' freedom of choice.

According to the financial sector on the 31st, among the four major commercial banks (KB Kookmin, Shinhan, Hana, and Woori), KB Kookmin, Shinhan, and Hana Banks have decided to completely stop selling ELS. Woori Bank is the only one among them that has not announced a full suspension of ELS-related product sales.

Initially, as large-scale losses were expected from Hong Kong H-Index-based ELS products, banks had been suspending or adjusting the sale of ELS-related products. KB Kookmin Bank stopped selling Hong Kong H-Index-based ELS at the end of last year and subsequently lowered the coupon yield on Nikkei 225-based ELS. Shinhan Bank also ceased sales of Nikkei 225-based ELS starting this month.

However, as large-scale losses from Hong Kong H-Index-based ELS continued and public opinion grew stronger in favor of banning the sale of high-risk financial products at bank counters, the banking sector took the bold step of completely halting sales. It is reported that some banks have even decided to suspend sales of principal-protected products that do not incur losses.

In particular, financial authorities are also considering sales bans. On the 29th, Kim Joo-hyun, Chairman of the Financial Services Commission, appeared before the National Assembly's Political Affairs Committee and, in response to a question from Lee Yong-woo of the Democratic Party about banning ELS sales, said, "All financial investment products carry risks," and added, "We will review the matter comprehensively."

KB Kookmin Bank stated, "We considered the increasing volatility in the global financial markets," while Shinhan Bank said, "We will focus on post-management of customers who incurred losses from Hong Kong H-Index-based equity-linked trusts (ELT) and will review resuming sales after reorganizing consumer protection systems and internal controls related to product sales."

However, some express concerns that if ELS suddenly disappear from bank counters due to hasty decisions, it could restrict financial consumers' options for financial products. Although ELS are high-risk financial products that can incur up to 100% losses if the underlying asset's price falls below a certain level, they have been considered representative investment products for about 20 years since their first launch in 2003, offering higher returns compared to deposit interest rates during low-interest periods.

An official from a commercial bank said, "While it cannot be said that there were no cases of mis-selling, it is questionable whether it is appropriate to suddenly decide to stop sales without a decision from authorities or clear grounds," adding, "This could restrict the choices of customers who have a high understanding of investment products."

Of course, alternatives such as securities firms' branches or mobile applications exist, but they are not comparable to banks with nationwide branch networks. According to the Financial Supervisory Service, 90.5% of those who subscribed to ELS products at banks did so through offline (face-to-face) channels. Considering that as of the end of September last year, the four major securities firms (Mirae Asset, NH Investment & Securities, Korea Investment & Securities, Samsung Securities) had 242 branches nationwide, which is less than one-tenth of the 2,824 branches of the four major banks, the suspension of sales by banks is likely to affect consumers' freedom of choice.

Woori Bank plans to continue selling ELS products to protect financial consumers' investment product choices. Woori Bank stated, "Since before the enforcement of the Financial Consumer Protection Act in March 2021, we have limited ELS sales counters to private banking (PB) counters only, and sales personnel are restricted to experienced staff holding essential certifications, so the scale of losses has been relatively minor," adding, "We will adjust our sales plans in accordance with any improvement measures related to investment products proposed by the authorities."