FSS cuts Hong Kong ELS fines for five banks to 600b won from 1.4tr won

The Financial Supervisory Service has cut the fines it plans to impose on five major banks over the sale of Hong Kong H-index (Hang Seng China Enterprises Index) equity-linked securities to around 600 billion won ($432 million) — less than half the previous figure of 1.4 trillion won ($1.01 billion).

According to financial authorities Thursday, the FSS convened its 12th sanctions review committee that day and provisionally set total fines of around 600 billion won against KB Kookmin, Shinhan, Hana, NH NongHyup and SC First banks.

The FSS had originally calculated fines of roughly 4 trillion won, then halved that figure to 2 trillion won during deliberations. In February, it voted on a further-reduced penalty of around 1.4 trillion won and forwarded the proposal to the Financial Services Commission. Last month, however, the FSC in effect returned the proposal, saying certain facts and the applicable laws and legal principles needed to be supplemented, prompting the FSS to resume discussions.

It was the first time the FSC had returned an FSS sanctions proposal since the Samsung Biologics accounting fraud allegations case in 2018 — a gap of eight years. The move fueled analysis, both inside and outside the regulatory community, that the proposed fines and other sanctions were excessive.

At Thursday's review committee meeting, the assessed severity of the banks' violations — covering both motive and method — was reportedly downgraded from "medium" to "low," which lowered the base rate used to calculate the fines.

The committee's decision will be finalized after a vote by the FSC.

The FSS said it would consolidate the findings of its review of the FSC's supplementation request with the committee's deliberations to finalize the details, and planned to forward the revised proposal to the FSC as soon as possible.

An FSS official said the agency had examined the issues flagged by the FSC and weighed a range of factors — including the fact that this is the first case brought under the Financial Consumer Protection Act since its enactment, as well as the motive and method of the violations. "The proposal will be transferred to the FSC as soon as it receives approval from FSS Governor Lee Chan-jin," the official added.