FSS threatens to expel firms that ignore customer losses
Financial Supervisory Service (FSS) Governor Lee Bok-hyun vowed to strictly respond to financial companies that focus solely on seeking short-term profits while disregarding negative outcomes for customers. He even warned of the possibility of expelling such companies that disturb financial stability and order.
The comment came during Lee’s press conference, Monday, aiming to lay out the state-run financial watchdog agency’s supervision directions set for this year.
“Financial companies’ management and board members bear the obligation to prioritize customer benefits and lead operations accordingly. Aiming to establish this basic principle and rigorously correct market orders, the FSS will take necessary measures sternly to make financial firms that neglect customers take full responsibility for their wrongdoings,” Lee said.
“The FSS will act on a strict principle under which it considers the possibility of even expelling such companies from the market.”
While heralding the supervisory agency’s stricter stance from this year, Lee explained that the FSS has so far been approaching such matters discreetly, due to both external and internal market uncertainties.
With regard to the FSS’ ongoing investigations on major financial companies over the mishandled selling of equity-linked securities (ELS) tied to the performance of the Hang Seng China Enterprises Index (HSCEI), Lee said he hopes that financial companies will soon come up with effective voluntary compensation plans that cater to the different circumstances of each victim who lost a significant amount of their investment.
According to the financial industry, the country’s five major banks — KB Kookmin, Shinhan, Hana, Woori and NH Nonghyup — raked in some 681.5 billion won ($511 million) from 2021 to the third quarter of 2023, by extensively selling ELS products.
In contrast to the banks’ snowballing profits from selling ELS products, customers’ average loss rates have exceeded 53 percent, given that they received repayment of only about 331 billion won in total, out of 706 billion won worth of principal which had reached maturity as of Friday.
“While the FSS plans to pursue an appropriate level of compensation to victims whose cases are confirmed as the result of the firms’ irresponsible sales practices, the agency aims to prevent more customers from suffering losses over retrogressive forms of incomplete sales, by thoroughly analyzing sales regulations on high-risk products,” Lee said.
However, when asked about a potential level of sanctions on financial companies that are involved in the problematic sales of ELS products, he tried to be cautious not to scare off financial companies’ drive towards business advancement, saying that “sanctions are what should be discussed at a much later phase, once every fact has been investigated and confirmed.”
FSS to strengthen ties with counterparts from HK, US
Lee also spoke about the country’s ban on short selling that will continue for the first half of this year. He said his agency is currently investigating a dozen global investment banks, along with domestic securities firms that processed the shorting orders by the global firms. Once the illegal short selling practices of the firms are confirmed, the FSS will take necessary steps to sanction them.
“As most of the firms charged with violations of illegal short selling practices are being operated at global investment banks’ Asia-Pacific regional offices, which are located in Hong Kong, discussions are underway for effective collaboration with the Hong Kong regulatory authorities, including the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority. The FSS plans to hold working-level talks with the Hong Kong regulatory authorities later this month,” Lee told The Korea Times during the press conference over the question about the FSS’ plan to hold bilateral talks with Hong Kong’s financial authorities.
After the working-level discussion, Lee himself or the agency’s vice chief will visit Hong Kong to strengthen ties with regulatory agencies there, probably later this year.
Lee also said that he plans to visit New York sometime this year, probably around May or June, to hold talks with U.S. Securities and Exchange Commission Chair Gary Gensler on various financial issues, including cryptocurrency issues and the Korean stock markets’ efforts to boost up stock prices according to their fundamentals. But he said nothing has been confirmed yet.