Woori, Hana to compensate DLF investors
Woori Bank and KEB Hana Bank are expected to compensate investors that are set to see losses from highrisk derivative products sold by the two banks, sources said Sunday.
The products in question, derivative-linked funds (DLF), are structured to track the performance of underlying assets such as interest rates and government-issued bond yields. Their returns are determined by the movements of those assets.
According to the Financial Supervisory Service (FSS), between 30 percent and 50 percent of the investment will be compensated provided that the products were indeed sold as a result of “irresponsible marketing,” a claim raised by most of the victims.
They maintain they never consented to seeking profit beyond the point of losing initial investment.
The FSS is outlining compensation guideline for those canceled the DLFs before the product maturity, a measure that could help fine-tune a more complicated one for those who held them to maturity.
“The draft of guideline made following months-long investigations will be referred to an outside committee for legal reviews,” an FSS official said.
“Their reviews will then be handed over to FSS dispute mediation committee, whose recommendation will be delivered to both financial services firms and the complainants.”
The FSS is believed to have found circumstantial evidence suggesting the two banks resorted to excessive marketing in violation of both relevant laws and in-house protocols, an indication of institutional failure of observing proper internal control.
The assessment stems from highly complex, complicated nature of the financial products.
The DLFs, a private equity fund whose profit is determined by yields of derivative-linked securities including 10-year German treasuries, promised an annual profit of up to 6 percent.
The relatively high profit was conditioned on the underlying assets’ yields moving within a certain range, but the catch was if the yield fall below a certain level and continues plummeting, the investor was set to lose investment in its entirety.
Like among many other intricately structured financial products, the product was hard to understand. This means the bank sales officials more likely than not have failed to ensure buyers understood how the products are designed to make profit as well as possible risks, grounds for punishment for “incomplete sales,” which warrants compensation.
Other factors to determine the compensation rate includes whether the financial firms made recommendations reflecting the investors’ source of income, age, financial knowledge and how much of a risk they are willing to take.
Meanwhile, a damage suit filed by two individuals and a corporate body among many other victims is set to begin Wednesday.
According to the Financial Consumer Agency (FCA), a consumer rights group, and Logos, a law firm, as many as 10 people will file a suit against the two banks for negligence.
More people will join the suit after establishing standing on charges of fraud.