First Press Conference Since Taking Office
Institutional Reprimands Expected over ELS
Possible Disciplinary Actions for Executives and Employees
Lee Chanjin, Governor of the Financial Supervisory Service, stated regarding the fines related to Hong Kong H Index equity-linked securities (ELS), "We are making every effort in consultation with the Financial Services Commission to ensure that no difficulties arise."
At his first press conference since taking office, held earlier this morning, Governor Lee responded to concerns from the financial sector that it would be difficult to maintain productive financial plans due to fines imposed for ELS and loan-to-value (LTV) ratio violations. He said, "The scale of fines and penalties is being determined within the legal limits for sanctions. We are proceeding in a way that upholds consumer protection while minimizing policy-related concerns as much as possible, taking into account what we can do within those boundaries."
Previously, the Financial Supervisory Service had given prior notice on November 28 to KB Kookmin Bank, Shinhan Bank, Hana Bank, NH Nonghyup Bank, and Standard Chartered Bank Korea, among others, of fines and penalties totaling approximately 2 trillion won in connection with the misselling of Hong Kong ELS. This represents the largest fine ever imposed since the enactment of the Financial Consumer Protection Act (FCPA) in 2021.
The FCPA stipulates that financial institutions may be fined up to 50% of the revenue gained from illegal acts or an equivalent amount. It is reported that the Financial Supervisory Service calculated the fines based on sales amounts. The financial industry estimates that the fine for KB Kookmin Bank will be around 1 trillion won, the largest among the institutions, while Shinhan, Hana, and Nonghyup will each face fines of approximately 300 billion won.
When a financial institution is fined, it must recognize an additional 600% of the fine amount as operational risk. In some cases, the risk-weighted asset (RWA) burden can persist for up to 10 years. The banking sector is concerned that an increase in RWA burden will significantly reduce not only corporate lending capacity but also the ability to provide productive finance.
Regarding the level of institutional sanctions related to ELS fines, Governor Lee commented, "There have been some institutional reprimands and some measures involving executives and employees during the prior notification process for Hong Kong ELS, but it is difficult to discuss specifics at this time." He added, "However, as this is the first leading case, it demonstrates how the supervisory authorities are taking a stance from the perspective of consumer protection."
Governor Lee also stated, "On one hand, consumer protection requires practical improvements as a preventive measure, but I also believe it is the mission of the supervisory authorities to actively encourage financial institutions to make post-incident remediation efforts."
Meanwhile, the Financial Services Commission and the Financial Supervisory Service are considering measures to defer the inclusion of fines in RWA calculations until the fines are finalized. They are also reviewing whether it is possible to shorten the period for reflecting operational risk from fines from the original 10 years to 3 years. The financial authorities have the discretion to shorten the reflection period if they determine there is no risk of recurrence of similar incidents.
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