HK-tied ELS investors unsatisfied with compensation plans
Investors who have suffered financial losses from equity-linked securities (ELS) tied to the performance of the Hang Seng China Enterprises Index are voicing their dissatisfaction with the government’s recently announced compensation guidelines.
They are even considering the possibility of a class action lawsuit if the dispute resolution process fails to offer “adequate” compensation.
On Friday, they staged a protest in front of NH NongHyup Bank headquarters in Seoul, demanding a reevaluation of the compensation proposal.
“The compensation plans have been designed purely to benefit the banks, without considering the positions of the ‘victims.’ This is unacceptable,” said Gil Seong-ju, the leader of the group.
Gil denounced the banks’ recommendations of the products as “financial fraud,” stating that the group believes the base compensation rate should be at least 60 percent to 70 percent.
“We will assess the adequacy of the compensation provided by each bank based on their voluntary schemes. Should these not align with investors’ interests, we are prepared to pursue collective dispute resolution, and resort to a class-action lawsuit if necessary,” he said.
Their dissatisfaction arose after the Financial Supervisory Service (FSS) announced compensation guidelines on Monday. These guidelines, which financial companies can apply voluntarily, are expected to cover from 20 percent to 60 percent of some investors’ losses.
Starting in April, the FSS will formally begin the dispute resolution process by selecting key cases of missold ELS and establishing a mediation committee.
However, there’s a prevailing market expectation that achieving a level of compensation satisfactory to investors could be challenging, given that the process is guided by predetermined guidelines.
In addition, banks are anticipated to take a conservative stance in calculating compensation ratios, driven by concerns over potential repercussions. They are currently conducting simulations in line with these guidelines to estimate the likely compensation amount.
The situation could prompt investors to take legal action against the banks.
“ELS products, which are typically distributed through public offerings, usually have fewer obvious structural flaws. This makes it challenging for investors to secure higher compensation amounts through lawsuits unless there is a clear instance of mis-selling,” a lawyer specializing in financial investments said on condition of anonymity.