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(Bloomberg) — South Korean regulators are imposing widespread sanctions against local banks and brokerages that sold exotic banknotes tied to Chinese stocks, fearing they could leave investors with significant losses. We are planning to launch an investigation.
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Authorities will begin investigating 12 financial institutions from Monday to determine whether there was any wrongdoing in the sale of equity-linked securities linked to the Hang Seng China Enterprise Index, the Financial Supervisory Service said in a statement. He added that KB Kookmin Bank and Korea Investment Securities are also among the companies targeted for investigation.
The watchdog said its two-month inspection found several problems, including practices that forced bankers to aggressively sell high-risk banknotes that were difficult for retail investors to understand.
Even if the bank had a system in place, “we wonder if the bank fulfilled its obligation to clearly explain the product, or if the customer simply clicked and signed the contract without knowing exactly what it was.” I don’t know if they bought it,” Financial Services Agency Governor Lee Bok-hyun said at a press conference on Thursday.
The study spotlights investment trends in South Korea, where an inadequate pension system and a general tendency toward risk trading have led retail investors to make highly speculative bets. The authorities are currently trying to address the situation by setting up a team to manage complaints from potential investors regarding potential losses from equity-linked bonds.
South Korea to establish potential loss countermeasure team for China-related ELS
About 15.4 trillion won ($11.7 billion) worth of stock-related securities will mature this year because investors failed to meet early redemption requirements, the Financial Services Agency said in a statement. Some notes were sold off in 2021 when the HSCEI was above 12,000, but the gauge is currently trading at less than half that level.
According to the Financial Services Agency, the total amount of banknotes in circulation is 19.3 trillion won, with individual investors holding 91% of it. Approximately 30% of investors are over 65 years old.
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