[Hong Kong ELS Compensation] "Detailed Adjustment Plan Positive" VS "Does Not Consider Mis-selling"

Subscribers Disappointed with Incomplete Sales Criteria
Political Circles Demand "100% Compensation for Seniors Aged 65 and Over"
Some Positive Reactions Say 'More Thorough than DLF Scandal'

Financial authorities have released a dispute mediation guideline related to the massive loss incident involving Hong Kong H Index (Hang Seng China Enterprises Index·HSCEI)-based equity-linked securities (ELS), but subscribers and political circles still argue that ‘incomplete sales’ were not considered. Banks positively evaluated the authorities for paying attention to detailed aspects but expected that it would take time until the final compensation plan is issued due to legal reviews.

Regarding the ELS adjustment plan announced by the Financial Supervisory Service on the 11th, victim A, who subscribed to a product worth 600 million KRW in January 2021, said, “Isn’t it wrong to compensate based on the degree of fraud when fraud was committed?” He added, “The principal should be compensated first, and then (mental) damage compensation is also necessary.”

According to A, the bank did not explain the investment risks, and he subscribed thinking it was a savings product. He further claimed, “I never even saw the documents, let alone signed them. After the problem occurred, I saw that the signatures on the documents looked exactly the same, as if copied and pasted,” arguing that this constitutes incomplete sales.

Some subscribers also find it hard to understand the criteria for judging investment experience and product understanding. B, who subscribed 34 times since 2015 with each deposit within the depositor insurance payout limit of 50 million KRW, said, “I thought it was a deposit or savings, so I was more cautious and paid attention to the insurance payout limit, but it’s absurd to reduce the compensation ratio just because I subscribed many times.” According to the adjustment plan announced by the authorities, subscribing to ELS products 34 times is considered having investment experience, resulting in a 5 percentage point reduction in the compensation ratio.

Victim Mr. B thought that the ELS product was similar to bank deposit products and subscribed 34 times, each with the depositor insurance payout limit of 50 million won. The photo shows Mr. B's ELS subscription application.
Photo by Reader Provided

He added, “There were past delayed repayments, but I was only told ‘It’s okay, just wait,’” and explained, “Since it was a 3-year maturity anyway, I thought it was no big deal and let it pass.” Having experience with delayed repayment is evaluated as having a high understanding of ELS products, leading to an additional 5 percentage point reduction in the compensation ratio.

In political circles, voices are calling for full compensation if incomplete sales are recognized, especially for elderly subscribers. A lawmaker’s office stated, “For victims aged 65 or older or dementia patients among the subscribers, where incomplete sales are clearly recognized, 100% compensation should be provided,” adding, “This incident appears to have more evident incomplete sales than the 2019 overseas interest rate-linked derivative-linked fund (DLF) loss incident, so if the compensation plan is not better than that time, victims will find it difficult to agree.”

Meanwhile, banks positively evaluate the current detailed adjustment capability, unlike the past DLF dispute adjustment plan. A bank official said, “During the DLF case, the minimum and maximum values were set uniformly, and adjustments were made autonomously within that range,” and evaluated, “This ELS dispute mediation guideline allows very detailed adjustments and can approach each case considering both the seller and the customer, which is favorable.”

However, despite the announcement of the adjustment plan, it was stated that legal review is necessary, so it will take some time until compensation is finalized. Another bank official said, “Looking at the adjustment plan announced today, there are so many diverse cases per subscriber that additional legal review will be needed for each case.”