Banks Fined Tens of Millions of Won for Failing to Record Sales of High-Risk Products to Elderly Customers

Financial Supervisory Service Sanctions Banks for Failing to Fulfill Obligations in High-Risk Product Sales
Tens of Millions of Won in Fines for KB Kookmin, Hana, Shinhan, and Others

The Financial Supervisory Service has imposed tens of millions of won in fines on major banks for failing to fulfill their recording obligations when selling high-risk products, such as derivative-linked securities, to senior citizens aged 70 and older.

On December 26, the Financial Supervisory Service announced that KB Kookmin Bank, Shinhan Bank, and Hana Bank had been sanctioned, including fines, for failing to confirm explanations and neglecting their recording obligations when selling equity-linked trust (ELT) products based on the Hong Kong H Index (Hang Seng China Enterprises Index, HSCEI) in 2021.

The Hong Kong H Index ELT is a specific money trust product that invests in equity-linked securities (ELS) on the Hong Kong H Index issued by securities companies. As long as the underlying asset, the Hong Kong H Index, does not fall below a certain level, the promised interest and principal are guaranteed. However, after these products were sold, the underlying Hong Kong H Index dropped sharply, causing significant losses for investors.

The Financial Supervisory Service imposed a fine of 36 million won on KB Kookmin Bank on December 24, citing the bank's failure to properly warn of the risks when selling high-risk products. The A branch of KB Kookmin Bank was found to have sold the Hong Kong H Index ELT product to investors on February 8, 2021, without obtaining confirmation from investors-through signature or personal seal-that they understood the explanation provided. In addition, several branches, including branch B, were found to have failed to properly record the contract process when selling the product to general investors aged 70 or older during a similar period.

According to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, trustees are required to record the contract process when entering into a trust contract with a general investor aged 70 or older that manages trust assets through derivative-linked securities, or when entering into a high-risk money trust contract with an individual general investor. However, this obligation was violated.

On the same day, Hana Bank was fined 24 million won and Shinhan Bank was fined 10 million won by the Financial Supervisory Service. Both Hana Bank and Shinhan Bank were penalized for violating the recording obligation when selling ELT products that included the Hong Kong H Index.

Woori Bank was sanctioned by the Financial Supervisory Service on December 23 for the misselling of private equity funds. It was revealed that Department C of Woori Bank violated its duty to explain the uncertainty of the products to investors during the launch of some private equity funds in 2019.

At 16 branches of Woori Bank, between June 2017 and August 2019, the bank violated obligations under the Capital Markets Act, such as the suitability principle and the duty to confirm explanations, when selling funds and trust products to 22 general investors. At some branches, it was found that sellers registered investor profile information arbitrarily in the system without actually identifying the investors' risk preferences.