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Bank chiefs may face sanctions over DLF case

Financial Supervisory Service Governor Yoon Suk-heun speaks during a parliamentary audit of the agency held at the National Assembly on Yeouido, Seoul, Tuesday. / Yonhap

By Kim Bo-eun

The heads of banks that engaged in mis-selling financial derivative options that caused huge losses to investors may be punished, the chief of the Financial Supervisory Service said Tuesday.

"We need to find out who is responsible and hold them accountable, as well as make sure the victims are compensated for their losses," FSS Governor Yoon Suk-heun said in a parliamentary audit of the agency at the National Assembly.

He said a review of possibly punishing bank chiefs would be necessary.

The FSS chief also said authorities will look into drawing up measures to prevent such cases from recurring.

"We will look into the process of creating financial products and selling them, including whether it is appropriate for banks to sell products that carry risks of a 100 percent loss," he said.

"We will also check the qualifications for investors of private equity funds."

The remarks came after the FSS conducted inspections into Woori and Hana banks which were found to have engaged in mis-selling 20 percent of derivative options tied to yields on underlying assets such as German treasuries. These are referred to as a type of derivative linked fund (DLF).

As of Sept. 25, it is estimated around 351.3 billion won was wiped out due to the sharp fall in yields on the underlying assets.

Yoon said authorities will look into the fee system in the sales process of derivative options such as DLFs.

This is based on inspection results that showed fees for the options were designed so that financial firms including banks, asset managers, brokerages and foreign IBs take 10 percent while consumers get 4 percent.

Yet the FSS chief acknowledged the agency is also somewhat responsible for the case.

This is based on the fact that the FSS is in charge of inspecting whether banks are engaging in practices such as mis-selling.

For example, the FSS conducts "mystery shopping" at banks, a practice in which officials are sent there disguised as customers.



Financial Supervisory Service Governor Yoon Suk-heun speaks during a parliamentary audit of the agency held at the National Assembly on Yeouido, Seoul, Tuesday. / Yonhap

By Kim Bo-eun

The heads of banks that engaged in mis-selling financial derivative options that caused huge losses to investors may be punished, the chief of the Financial Supervisory Service said Tuesday.

"We need to find out who is responsible and hold them accountable, as well as make sure the victims are compensated for their losses," FSS Governor Yoon Suk-heun said in a parliamentary audit of the agency at the National Assembly.

He said a review of possibly punishing bank chiefs would be necessary.

The FSS chief also said authorities will look into drawing up measures to prevent such cases from recurring.

"We will look into the process of creating financial products and selling them, including whether it is appropriate for banks to sell products that carry risks of a 100 percent loss," he said.

"We will also check the qualifications for investors of private equity funds."

The remarks came after the FSS conducted inspections into Woori and Hana banks which were found to have engaged in mis-selling 20 percent of derivative options tied to yields on underlying assets such as German treasuries. These are referred to as a type of derivative linked fund (DLF).

As of Sept. 25, it is estimated around 351.3 billion won was wiped out due to the sharp fall in yields on the underlying assets.

Yoon said authorities will look into the fee system in the sales process of derivative options such as DLFs.

This is based on inspection results that showed fees for the options were designed so that financial firms including banks, asset managers, brokerages and foreign IBs take 10 percent while consumers get 4 percent.

Yet the FSS chief acknowledged the agency is also somewhat responsible for the case.

This is based on the fact that the FSS is in charge of inspecting whether banks are engaging in practices such as mis-selling.

For example, the FSS conducts "mystery shopping" at banks, a practice in which officials are sent there disguised as customers.



Kim Bo-eun bkim@koreatimes.co.kr


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