The financial authorities will look into a set of high-risk, high-yield financial products sold by the nation's top commercial banks following complaints from customers who claim they are likely to suffer losses due to the lenders' "irresponsible marketing."
According to the Financial Supervisory Service (FSS), Tuesday, a team of officials will investigate the sales process and the nature of the financial products, mostly derivative-linked securities (DLS).
DLS refers to financial products structured to track the performance of underlying assets such as interest rates and government-issued bond yields. Their returns are determined by movements of those underlying assets.
"The investigation will look into how the products are structured and whether the sales had any irregularities," an FSS official said.
The DLS in question include ones that were invested in 10-year German treasuries. Investors claimed that lenders provided misleading information about yields on those treasuries.
An unidentified number of investors made over 1 trillion won ($820 million) investment in such high-risk products, and over half are expected to see losses.
Banks subject to the investigation include Woori, KEB Hana and Shinhan Bank.
Woori and KEB Hana each sold DLS related to German bonds worth 400 billion won, and Shinhan sold 300 million won worth of DLS.
Most at risk are Woori-sold products whose maturities are as early as Sept. 19. Unless the bonds' yields see a sharp rise within a one-month timeframe, investors will lose their principals.
DLS has been one of the most popular financial products alongside equity-linked securities (ELS) over the past few years amid stagnant sales of installment savings accounts due to low interest rates.
Many banks with a wealth management division have sold these products to high-end customers, saying they are available to only a limited number of customers.