The Financial Services Commission and the Financial Supervisory Service published comprehensive proposals to prevent mis-selling of highly complex financial investment products, following investor losses linked to Hong Kong index-linked equity-linked securities (ELS). The package focuses on restricting how banks distribute complex products, strengthening suitability and disclosure practices, and tightening internal controls and supervisory monitoring. For bank distribution, ELS sales would be permitted only at qualified branches with dedicated, physically separated space for ELS sales and handled solely by trained and certified personnel with at least three years of relevant experience. Other highly complex products, including highly complex public offering funds, could be sold at regular and qualified branches, but only through clearly distinguishable counters separated from ordinary deposit-taking and lending functions. Equivalent channel requirements would apply to branches co-locating a bank and its affiliated securities firm, and bank employees’ marketing for complex products would be excluded from key performance indicators. Consumer-protection elements include embedding consumer protection standards into internal controls under the Act on Corporate Governance of Financial Companies, applying suitability and adequacy testing across all six required criteria using both scoring and factoring-out methods, defining product-specific target customer groups, and documenting instances where a customer proceeds despite being deemed unsuitable. Disclosures would be strengthened through prominent “highly complex financial investment product” labeling, front-loaded warnings including examples of realized losses, and video explanations delivered via mobile links or QR codes during subscription and the cooling-off period. The proposals also call for KPI redesign to reduce emphasis on short-term sales performance, periodic Financial Supervisory Service inspections of suitability and adequacy practices with an expanded mystery shopping sample base, and firm-level reassessment of sales limits (for example, monthly) alongside quarterly authority monitoring for abnormal market movements. The authorities plan to implement measures that do not require rule changes immediately and to pursue legislative and subordinate rule amendments within this year.
South Korea Financial Services Commission 2025-02-26
South Korea Financial Services Commission and Financial Supervisory Service propose limiting equity linked security sales to qualified bank branches and tightening suitability controls
South Korea's Financial Services Commission and Financial Supervisory Service proposed measures to prevent mis-selling of complex financial products after losses from Hong Kong index-linked securities. Proposals include restricting bank distribution, enhancing suitability and disclosure practices, and tightening internal controls and monitoring. Key measures involve qualified branches for ELS sales, consumer protection standards, and redesigning KPIs to reduce short-term sales focus.