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