The Financial Supervisory Service (FSS) — South Korea’s financial regulator —  has unveiled guidelines advising banks and brokerages to compensate for losses incurred from investments in derivative products linked to Chinese stocks listed on the Hong Kong exchange. The move comes after a two-month inspection starting Jan. 8 revealed widespread incomplete sales practices in the selling of Equity-Linked Securities (ELS) products tracking Hong Kong’s H Index, with potential combined losses reaching up to $14.2 billion (5.8 trillion won) if redeemed at end-February values.

Under the proposed guidelines, financial institutions are required to compensate investors a minimum of 20% of their losses, with the possibility of up to 100% compensation for serious regulatory violations. The FSS emphasizes that these measures are aimed at providing reasonable compensation to affected consumers while upholding the principle of investor responsibility. This directive follows the detection of various illegal and unfair practices, including failures to fully inform consumers about product risks, highlighting the need for enhanced consumer protection in the financial sector.