Why it matters. The case is one of Asia's largest consumer-finance scandals and shows how regulators weigh penalties against banks that sell complex products to ordinary savers — a tension familiar to investors worldwide.
Background. In South Korea, banks are permitted to sell high-risk structured products like ELS directly at retail branches, and many buyers were older, conservative depositors. 'Incomplete selling' is a specific legal concept in Korean finance law covering inadequate risk disclosure. The Financial Supervisory Service investigates, but the separate Financial Services Commission holds final authority — a two-body structure that explains why the fine has been revised so many times.
What to watch next. The reduced penalty still needs final approval from the FSC, and the banks may contest it or face additional investor-compensation demands.
South Korea’s financial watchdog has cut the fines it plans to impose on five major banks for allegedly mis-selling risky Hong Kong-linked investment products, setting the combined penalty at roughly 600 billion won (about US$440 million) — less than half the 1.4 trillion won it had proposed earlier this year.
The Financial Supervisory Service (FSS), the agency that polices Korea’s banks and brokerages, approved the reduced penalty on June 4 at an emergency meeting of its Sanctions Review Committee. The five lenders are KB Kookmin, Shinhan, Hana, NH Nonghyup and SC First Bank (the Korean unit of Standard Chartered).
What the banks are accused of
At the center of the case are equity-linked securities (ELS) — structured products whose payouts depend on the performance of an underlying index, in this instance Hong Kong’s H-index, which tracks major Chinese companies listed in Hong Kong. Korean banks sold these products heavily over the counter from 2021 onward, often to ordinary retail savers.
When the H-index tumbled, many of the products crossed into loss territory, wiping out part of investors’ principal and generating losses estimated in the trillions of won. The FSS concluded that bank staff had engaged in incomplete selling — a Korean regulatory term for failing to adequately explain the risks, including the possibility of losing principal, before customers signed up.
Why the penalty keeps shrinking
The fine has been revised downward repeatedly. After its initial investigation, the FSS calculated penalties of around 4 trillion won and notified the banks. By February it had settled on about 1.4 trillion won and referred that package to the Financial Services Commission (FSC), the higher policy body that issues final rulings.
Last month, however, the FSC sent the case back, asking the FSS to firm up some of the facts and to clarify which laws and legal reasoning applied. In the resulting review, the committee downgraded its assessment of both the banks’ motive and their methods from “medium” to “low” — a change that lowered the base rate used to calculate the fines and brought the total to roughly 600 billion won.
What happens next
The Sanctions Review Committee is an advisory panel to the head of the FSS, who typically follows its recommendation. The penalty must still be signed off by the FSS governor and then formally confirmed by a vote of the FSC before it becomes final.
