South Korea’s financial watchdog on Monday fined KEB Hana Bank, one of four major commercial banks here, nearly 3.2 billion won ($2.7 million) for selling exchange-traded notes without providing sufficient information to customers.
According to the Financial Supervisory Service, KEB Hana violated the Financial Investment Services and Capital Markets Act by allowing its 140 local branches to recommend and sell high-risk exchange-traded notes through bank trusts to its clients who were unaware of the conditions.
The products worth a combined 800 billion won were sold from November 2017 to September 2018, and the bank received a commission of 6.9 billion won in the process.
KEB Hana Bank (Yonhap)
The size of the loss estimated to occur at the end of the products’ maturity has yet to be confirmed, a KEB Hana spokesperson told The Korea Herald.
ETNs are types of unsecured debt securities that track an underlying index of securities and trade on a major exchange like stocks. Though they are similar to bonds, they do not pay interest and their prices fluctuate like stocks.
Those sold by KEB Hana were tied to the Kospi 200, comprising the largest listed common stocks traded on the nation’s main bourse and widely used as a benchmark.
KEB Hana also reportedly reclassified its clients categorized as “conservative” to “aggressive” -- from those seeking low-risk investments to high-risk -- without the clients’ full knowledge or consent.
Two unnamed officials at the bank responsible for the selling were reprimanded as well.
The probe into the ETNs sold at the bank was launched in November last year after a lawmaker here raised suspicions that KEB Hana had missold such products.
The news came as commercial banks face a snowballing controversy concerning the misselling of high-risk products and derivatives.
In a separate case, the FSS recently recommended KEB Hana and its industry peer Woori Bank compensate customers who lost money in their derivatives-linked fund investments. It ordered the lenders to cover up to 80 percent of the losses.
The FSS is set to punish the banks’ heads in mid-January for the derivatives fiasco, according to recent reports.
By Jung Min-kyung (email@example.com