South Korea's Financial Services Commission voted on Wednesday to fine seven banks 361.96 billion won, plus penalty surcharges of 1.78 billion won, for mis-selling equity-linked securities (ELS) tied to Hong Kong's H-index. Six securities firms were fined a further 9.28 billion won with 1.61 billion won of surcharges, bringing the total to about 374.6 billion won, the largest monetary sanction the FSC has ever imposed.
KB Kookmin Bank received the largest penalty at 172.33 billion won, followed by Hana Bank at 92.47 billion won, Nonghyup Bank at 40.17 billion won, Shinhan Bank at 38.74 billion won and SC First Bank at 17.9 billion won. Woori Bank was fined 331 million won and Suhyup Bank was not fined. The decision came nearly three years after regulators opened their investigation in November 2023.
A PENALTY CUT IN STAGES
The final bank fines are below what the Financial Supervisory Service first sought. It proposed fines of about 1.4 trillion won on five banks in February, and a re-examination requested by the FSC brought that down to about 600 billion won in June.
The products were sold widely. Banks and brokerages sold a combined 19.3 trillion won of H-index ELS from 2021, the FSS said, with KB Kookmin Bank the largest seller at 8.2 trillion won, ahead of Shinhan Bank at 2.37 trillion won, NH Nonghyup at 2.13 trillion won and Hana Bank at 2.11 trillion won. Buyers suffered heavy losses in early 2024 when the index plunged.
According to Korea JoongAng Daily, the reductions are believed to reflect several factors, including the roughly 1.4 trillion won that banks and other institutions have already paid in compensation to customers, more than the profits they earned from the products, as well as court rulings in favour of some banks.
WHAT THE REGULATOR FOUND
The FSC found that the banks omitted simulated returns, altered the analysis periods used in product disclosures and failed to explain adequately the risks tied to fluctuations in the underlying asset price. An FSC official said these were the first monetary sanctions on major financial institutions since the consumer protection act was enacted in 2021.
The commission plans detailed guidelines on disclosure standards for investment products, with implementation set for the first quarter of 2027.
BANKS WEIGH A CHALLENGE
Observers expect the banks to file administrative lawsuits against the FSC to contest the penalties. Another banking industry insider argued that the fines could amount to double punishment, saying banks had already paid substantial compensation voluntarily.
THE TGB VIEW
In the TGB Bank Rankings, KB Financial Group is 66th globally with a 9.9% return on equity in 2025 and Hana Financial Group 81st with 9.0%; KB Kookmin Bank and Hana Bank received the two largest of the new fines. The penalties land on a system in which five groups, KB, Shinhan, Hana, Woori and NH NongHyup, own the largest commercial banks, and 71.3% of the ten holding companies' assets sat in banking at end-June 2026. The next dated step is the FSC's disclosure guidance for investment products, due to take effect in the first quarter of 2027; observers also expect the banks to challenge the fines in court.
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