South Korea delays decision on Hong Kong ELS fines for banks

South Korea's financial regulators have again delayed a decision on imposing fines on five major banks for their alleged mis-selling of Hong Kong stock-linked securities (ELS). The Financial Services Commission (FSC) did not approve the sanctions against KB Kookmin, Shinhan, Hana, NH Nonghyup, and SC First Bank at its regular meeting.

The fines, initially proposed at 1.4 trillion won (approximately $1 billion) by the Financial Supervisory Service (FSS) in February, were significantly reduced to around 600 billion won after the FSS recalculated the penalties. This recalculation reportedly adjusted the assessment of the banks' motives and methods in selling the complex financial products.

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It seems unlikely to be processed at today's regular meeting. However, we are continuing to review it to finalize it as quickly as possible.

This marks the second postponement for the sanctions, which were first sent back to the FSS in May for further review of factual details and legal application. The FSC's hesitation to approve the revised sanctions, even after the recalculation, has led to speculation that the ongoing legal battles involving financial institutions in South Korea may be influencing the regulatory body's cautious approach.

Banks are reportedly considering legal challenges to any final sanctions, viewing potential litigation as a necessary step to protect their interests. With the FSC's August meeting typically not held, the final decision is now likely to be made in September or later, unless an extraordinary meeting is convened. The prolonged delay underscores the complexity and sensitivity surrounding the ELS mis-selling scandal.

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There is room to argue legally, and not taking any action itself could be grounds for breach of trust. From that perspective, considering administrative litigation may be an unavoidable option for the banks.