Regulator to inspect 12 banks, brokerages over sales of derivatives linked to Hong Kong exchange

SEOUL, The financial regulator said Sunday that it will launch an investigation into sales of derivative products that track Chinese stocks listed on the Hong Kong exchange, amid concerns that such products would put investors at risk of posting heavy losses.

The inspection into 12 local banks and brokerages will begin Monday, according to the Financial Supervisory Service (FSS).

The five banks and seven brokerages have sold a combined 19.3 trillion won (US$14.68 billion) worth of so-called equity-linked securities (ELS) products tracking Hong Kong’s H index since 2021, the FSS said.

ELS refers to hybrid securities whose returns are linked to the performance of underlying equities, including a stock index.

Of the total outstanding amount, 79.6 percent, or some 15.4 trillion won, worth of products will be redeemed in the first half of this year, but they are expected to post heavy losses due to poor performances by the H index, according to the FSS.

The FSS has conducted a preliminary review of sales of
H index-based ELS products after complaints had been filed against at least the two largest sellers of the ELS products — KB Kookmin Bank and Korea Investment and Securities Co.

“As a result of the review, a considerably large number of problems have been detected, including inadequate management of the sales cap, failure to store documents related to sales and a policy drive to sell high-risk, high-level ELS products,” the FSS said.

An investigation into the complaints filed against the two major sellers will take place simultaneously with the inspection of all 12 sellers, it added.

Source: Yonhap News Agency