South Korea watchdog finds wrongdoings in sales of China equity derivatives

By Thomson Reuters Mar 10, 2024 | 8:12 PM

SEOUL (Reuters) – South Korea’s financial market watchdog said on Monday it has found wrongdoings by financial firms selling derivatives linked to a Hong Kong stock market index.

“The inspection result shows there was poor management of sales policy and consumer protection, incomplete sales at the system level and various kinds of incomplete sales in individual cases,” the Financial Supervisory Service (FSS) said, after two months of investigating 11 financial firms.

The structured notes track the performance of the Hang Seng China Enterprises Index and promise bond-like coupons unless the index drops below a certain level. Its sharp drop early this year has caused huge losses for retail investors.

The FSS said it would punish wrongdoings in investment product sales according to law, such as through sanctions and fines, while each firm’s effort for compensating customer losses would also be taken into account.

Together with the investigation result, the watchdog provided a guideline for financial firms on voluntary compensation to investors for their losses. The amount of compensation will vary case by case, depending on each firm’s responsibility and investor characteristics, it said.

The FSS said investors have lost 1.2 trillion won ($911 million) out of 2.2 trillion won that matured in January and February, and it expects an additional loss of 4.6 trillion won this year if the index remains at the current level.

($1 = 1,318.2600 won)

(Reporting by Jihoon Lee; Editing by Josie Kao)