Financial Supervisory Service Director: “It is desirable that some financial companies provide voluntary compensation for the many losses caused by issues such as non-face-to-face sales.” Applications for dispute mediation and civil complaints reached 3,000, with plans to finalize the loss distribution scheme this month.
As a result of an on-site inspection by the financial authorities, it was revealed that there were many cases of mis-selling of equity-linked securities (ELS) underlying the Hong Kong H Index. As some cases of improper sales have been confirmed to be true, disciplinary action against the relevant financial company and investor compensation procedures are expected to proceed. The Financial Supervisory Service intends to prepare compensation standards within this month and start the dispute mediation process, but to encourage financial companies to compensate certain amounts voluntarily.
● “Recommended investment of cancer insurance money and retirement funds”
Lee Bok-hyeon (pictured), head of the Financial Supervisory Service, appeared on KBS on the 4th and said, “It has been confirmed to some extent that there have been incomplete sales or inappropriate sales to the elderly,” and added, “The A financial company also recognized significant facts during the on-site inspection.”
In particular, it mentioned cases of failure to comply with ‘business conduct compliance requirements for all types of financial products’ under the Financial Consumer Protection Act (the Financial Consumer Protection Act). Director Lee said, “It is clearly anticipated that consumers who have received retirement security funds or cancer insurance will need money in the near future. Currently, they should not invest in high risk products where principal loss is expected, and (ELS). ) is recommended for such people.” “There is one cause,” he said.
In this case, it can be interpreted as breaching the principle of propriety under the Financial Services and Security Act. He analyzed, “There is a principle of suitability under the Financial Services and Finance Act,” and “Even if the consumer decides to invest, if the ‘initial recommendation’ is not done properly, selling the product itself is wrong.”
There was also a securities company that did ‘non-face-to-face sales’ to customers who visited its branches via smartphones. Director Lee said, “We have to explain the product to customers who visit the counter, record it, and leave it behind, but as this is complicated, there are cases where an employee presses directly (the product sign-up process) on the customer’s mobile phone and sells it.” He added, “The main premise of non-face-to-face sales is “This is something that could be a bit of a problem because it’s been violated,” he said.
Some banks breached the ’20 year standard’ principle by providing products based on the average rate of return over the last 10 years. Director Lee criticized, “Some individual cases are confirmed to have strong illegal elements, such as explaining the 2008 financial crisis (recovery rate) by omitting such issues.”
● Financial firms are also under pressure to provide ‘voluntary compensation’
The Financial Supervisory Service conducted on-site inspections of major ELS dealers from the 8th of last month to the 2nd of this month to determine the facts of incomplete sales. Additional testing is planned after the Lunar New Year holidays are over. This is because the volume of sales and losses are large, and the number of complaints and disputes has also increased rapidly. According to the financial authorities, as of the 2nd, the number of dispute mediation requests and civil complaints received by the Financial Supervisory Service amounted to approximately 3,000.
It appears that the compensation standards will be broadly divided into major types of incomplete sales. Director Lee said, “We will conduct a second inspection and finalize a plan to distribute losses between financial companies and consumers within this month.” He added, “It is desirable to maintain a procedure that allows financial companies to compensate voluntarily for some of these. them apart from the dispute mediation process.” “he said. In the past, the Financial Supervisory Service has proposed to financial companies that they compensate investors for part of the compensation in the case of large-scale losses, such as in the case of derivative-linked funds (DLF).
Once the compensation standards are published, each product vendor will independently adjust compensation according to the standards. However, the Financial Supervisory Service’s adjustment decision is limited to a ‘recommendation’ with no legal obligation. This means that if the financial company does not accept the compensation standards, there is a possibility that it could escalate into a legal case. In this ELS incident, although many elderly people have invested, many people have investment experience and it is a product that has been sold in the market for a very long time, so it is difficult to place responsibility for the loss in only on financial companies.
Reporter Jeong Soon-gu soon9@donga.com
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