[Hong Kong ELS Compensation] Lee Bok-hyun "Sales Headquarters Encouraged 'Incomplete Sales'... Swift Progress in Dispute Mediation"

Selling financial products against the principles and intent of the Financial Consumer Protection Act
Failure to manage sales limits or encouraging sales through KPIs
"Consideration of post-sale efforts by sellers when determining penalty levels such as fines"

Lee Bok-hyun, Governor of the Financial Supervisory Service, is delivering opening remarks at the meeting of research institute heads held on the 28th at the Kensington Hotel in Yeouido, Yeongdeungpo-gu, Seoul. Photo by Jo Yong-jun jun21@

"Although the enforcement of the Financial Consumer Protection Act has significantly strengthened legal regulations and procedures, some sales firms have encouraged incomplete sales even during periods when customer loss risks increased."

Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), stated this during his opening remarks on the 11th ahead of the announcement of the 'Inspection Results and Dispute Mediation Standards Related to Hong Kong H-Index Based ELS.' Since January, the FSS conducted on-site inspections and complaint investigations targeting major banks and securities firms for two months, and released the inspection results and dispute mediation standards on this day.

Governor Lee said, "I deeply regret that another large-scale investor loss incident has occurred following the past derivative-linked fund (DLF) and private equity fund incidents," adding, "I hope that investors receive fair compensation so that disputes can be resolved smoothly, and that this incident serves as an opportunity for financial companies, financial consumers, and financial supervisory authorities to reflect together."

He continued with sharp remarks toward banks and securities firms: "The FSS inspection and investigation results revealed numerous cases where Hong Kong ELS sales firms sold financial products in ways that did not comply with the principles and intent of the Financial Consumer Protection Act. In particular, some sales firms did not manage sales limits even when customer loss risks increased, and rather encouraged sales through performance evaluation indicators (KPIs)." "The product sales system at the sales headquarters did not comply with sales principles such as the suitability principle and duty of explanation, and various types of incomplete sales occurred during individual sales processes."

Furthermore, Governor Lee explained, "The dispute mediation standards announced today were prepared by referring to past dispute cases such as the DLF and private equity fund incidents, while considering the unique characteristics of this ELS product sales and investment behavior," adding, "Unlike past cases, these products were popularized and standardized through public offerings and sold to many individual investors. Also considered were the generally older age group of investors, the product structure allowing early redemption and repeated subscriptions, and the long sales period during which applicable laws and regulations varied depending on the sales timing." He emphasized, "The dispute mediation standards were carefully prepared so that investors who suffered losses unfairly receive appropriate compensation without undermining the principle of 'investor self-responsibility,'" and said, "The loss compensation ratio comprehensively reflects the responsibility of sales firms confirmed by inspection results and the investor responsibility characteristics by investor."

Governor Lee stated, "Each sales firm can voluntarily compensate (private settlement) according to these mediation standards," and added, "Efforts to remedy customer damages and other post-incident measures will be taken into account when determining the level of sanctions such as fines in accordance with relevant laws and procedures." He concluded by saying, "The FSS will work with the Financial Services Commission to improve the sales system of financial investment products such as ELS to prevent recurrence of similar cases in the future."