Korea's 5 biggest financial groups missold ₩6T in Hong Kong stock derivatives

Between 2020 and 2021, South Korea's largest financial groups sold billions of won in equity-linked securities (ELS) tied to the Hang Seng China Enterprises Index (HSCEI). The products were marketed as medium-risk investments to retail investors, many of whom were elderly or inexperienced. By early 2021, HSCEI was trading between 10,000 and 12,000 points.

The China property crisis and regulatory crackdown sent HSCEI into a prolonged decline. The index fell more than 50%, dropping to below 5,000 points by October 2022. The ELS products — structured to pay returns based on the index's performance — began maturing in 2023 and 2024 with massive losses. Total outstanding HSCEI-linked ELS sold by Korean banks reached 18.8 trillion won.

The Financial Supervisory Service (FSS) launched a probe into 12 financial institutions for possible misselling, finding that banks had not adequately explained the risks. In March 2024, the FSS ordered banks to compensate investors. The five largest financial groups — KB, Shinhan, Hana, Woori, and NongHyup — collectively set aside nearly 1.7 trillion won ($1.2 billion) for compensation, with KB alone reserving 862 billion won. Total expected losses from the products reached almost 6 trillion won ($4.24 billion).