[Q&A] Kim So-young "Approximately 200 to 400 Bank Branches Selling ELS"

Financial Authorities Announce Measures to Prevent Incomplete Sales of Complex Investment Products
Equity-Linked Securities (ELS) to Be Sold Only at Designated Key Bank Branches

Kim So-young, Vice Chairman of the Financial Services Commission, is briefing on the status and measures of Hong Kong H-Index based ELS at the joint briefing room of the Government Seoul Office in Jongno-gu, Seoul on the morning of the 26th. Photo by Financial Services Commission.

Going forward, high-risk financial investment products such as Hong Kong equity-linked securities (ELS) will only be sold through bank branch offices equipped with consumer protection measures.

On the 26th, the Financial Services Commission announced a "Comprehensive Plan to Prevent Incomplete Sales of High-Risk Financial Investment Products," stating that banks will be required to sell ELS only through certain large branches that have sufficient consumer protection measures in place. After each bank conducts its own inspection, sales are expected to resume after September.

Kim So-young, Vice Chairman of the Financial Services Commission, said, "There are about 3,900 branches of the five major banks, and it is expected that about 5 to 10% of them will become key branches." It is anticipated that approximately 195 to 390 branches will be designated as sales-eligible branches.

The following is a Q&A with Vice Chairman Kim.

- ELS purchases will only be possible at designated key branches for each bank. How many key branches will there be?

▲ A key branch is a branch that serves as the center or base of business activities within a certain area. As of the end of last year, there were about 3,900 branches of the five major banks, and about 5 to 10% of them are expected to become key branches. The principle that sales must be conducted at branches that meet sufficient requirements is important. There is no limit on the number of branches.

- Only ELS products are separated by branch, while other high-risk products are separated within the branch. Why is ELS treated specially?

▲ First, the product structures are quite different. Among the other high-risk products currently sold by banks, there are funds such as leveraged funds and inverse funds, which are assumed to be clearly understood by customers at the time of subscription. On the other hand, ELS is considered different because there is a possibility that customers do not fully understand the product structure. In particular, there is a significant risk of confusing ELS with bank deposits and savings accounts that guarantee principal.

- Will residents in rural areas who find it difficult to visit key branches face excessive inconvenience?

▲ Initially, some consumers may experience inconvenience, but it is expected that banks will operate by balancing the placement of key branches considering regional consumer demand.

- Will limiting ELS subscriptions to key branches excessively restrict consumer choice?

▲ Considering the incomplete sales cases revealed by inspections related to ELS and existing sales practices, it is judged that selling through channels equipped with sufficient consumer protection measures is a balanced improvement plan.

- Banks currently sell ELS products. Can they continue selling until all measures are implemented?

▲ We have not explicitly imposed sales restrictions. However, most banks are understood to have voluntarily stopped sales due to the significant impact of the situation. Principal-guaranteed ELS products can still be sold.

- There are ongoing calls to clarify the criteria for imposing fines under the Financial Consumer Protection Act and to increase the level of fines to prevent a recurrence of the ELS incident.

▲ While discussing amendments to the law, we plan to raise the level of fines in the future. The fines will be much higher compared to before. We aim to prepare the amendment bill by around September and will continue discussions with the National Assembly.

- When will it be possible to purchase ELS products at banks?

▲ Most banks are currently not selling ELS products, but sales will resume at banks that complete their own inspections after September. Online sales resumption will also be considered in line with the resumption of face-to-face sales.