{"id":2208530,"date":"2025-02-27T08:00:12","date_gmt":"2025-02-26T23:00:12","guid":{"rendered":"https:\/\/koreapro.org\/?p=2208530"},"modified":"2025-02-26T15:54:21","modified_gmt":"2025-02-26T06:54:21","slug":"south-korea-cracks-down-on-risky-bank-investments-with-tough-new-regulations","status":"publish","type":"post","link":"https:\/\/koreapro.org\/2025\/02\/south-korea-cracks-down-on-risky-bank-investments-with-tough-new-regulations\/","title":{"rendered":"South Korea cracks down on risky bank investments with tough new regulations"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">South Korea\u2019s financial watchdog <\/span><a href=\"https:\/\/www.fss.or.kr\/fss\/bbs\/B0000188\/view.do?nttId=191478&amp;menuNo=200218&amp;pageIndex=1\"><span style=\"font-weight: 400;\">announced<\/span><\/a><span style=\"font-weight: 400;\"> on Wednesday a series of regulatory measures to prevent the improper sale of high-risk financial products, particularly equity-linked securities (ELS). The new rules will limit the sale of these products to designated bank branches staffed with licensed investment advisers and impose stricter suitability assessments for retail investors. The changes come after massive investor losses tied to autocallable Hang Seng China Enterprises Index (HSCEI) ELS, with retail customers at five major banks suffering combined losses of $3.2 billion (4.6 trillion won) in 2024.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Under the new framework, banks will be required to physically separate ELS sales from general banking services, introduce mandatory video briefings for customers and implement a two-day cooling-off period before transactions can be finalized. These measures will be phased in following revisions to financial regulations later this year, with full implementation expected by September. The Financial Supervisory Service (FSS) is also increasing compliance monitoring, including on-site inspections and stricter penalties for violations.<\/span><\/p>\n<p><b>WHY IT MATTERS<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The FSS\u2019 forced restructuring of ELS means that banks that relied on high-margin structured products for fee revenue will now face lower sales volumes, stricter compliance burdens and potential reputational damage if they fail to comply. Investors should expect a tighter credit environment as banks compensate for lost ELS revenue through higher lending rates, <\/span><a href=\"https:\/\/www.cwmnw.com\/risk-adjusted-models\"><span style=\"font-weight: 400;\">risk-adjusted wealth management products<\/span><\/a><span style=\"font-weight: 400;\"> or <\/span><a href=\"https:\/\/www.sc.com\/tw\/en\/investment\/structured-notes\/\"><span style=\"font-weight: 400;\">offshore structured products<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For institutional investors and fund managers, the forced transparency and suitability assessments could limit retail investor participation in high-risk products, shifting demand toward institutional buyers or alternative asset classes. The near-term impact will likely be increased volatility in the local ELS market, particularly for products linked to the HSCEI. The new restrictions could also have broader implications for global structured product hubs, such as Switzerland and Hong Kong, where banks may look to restructure South Korea-focused structured products into <\/span><a href=\"https:\/\/www.hangseng.com\/en-hk\/personal\/investment\/structured-notes\/\"><span style=\"font-weight: 400;\">alternative formats<\/span><\/a><span style=\"font-weight: 400;\">, affecting liquidity, pricing, and hedging strategies for international investors.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It remains to be seen how banks will respond to the FSS\u2019 new regulatory measures. Some may pivot toward offshore issuance or less regulated derivatives, such as private ELS, while others could push low-risk, principal-protected alternatives, such as <\/span><a href=\"https:\/\/sp.jpmorgan.com\/spweb\/content\/271732.pdf\"><span style=\"font-weight: 400;\">market-linked certificates of deposit<\/span><\/a><span style=\"font-weight: 400;\"> and <\/span><a href=\"https:\/\/www.hangseng.com\/en-hk\/personal\/investment\/structured-notes\/\"><span style=\"font-weight: 400;\">capital-protected structured notes<\/span><\/a><span style=\"font-weight: 400;\">, which reduce fee income. Moreover, banks may front-load sales of existing ELS products before the new regulations take full effect in September, leading to short-term distortions in issuance volume and risk-taking behavior.<\/span><\/p>\n<div class=\"content-tags\"><a href=\"https:\/\/koreapro.org\/tag\/business-economy\/\"><span class=\"tag\">Business &amp; Economy<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"<p>South Korea\u2019s financial watchdog announced on Wednesday a series of regulatory measures to prevent the improper sale of high-risk financial products, particularly equity-linked securities (ELS). The new rules will limit the sale of these products to designated bank branches staffed with licensed investment advisers and impose stricter suitability assessments for retail investors. The changes come [&hellip;]<\/p>\n","protected":false},"author":10407,"featured_media":2208531,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[30],"tags":[24],"class_list":["post-2208530","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-briefings","tag-business-economy"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>South Korea cracks down on risky bank investments with tough new regulations - Korea Pro<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/koreapro.org\/2025\/02\/south-korea-cracks-down-on-risky-bank-investments-with-tough-new-regulations\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"South Korea cracks down on risky bank investments with tough new regulations - Korea Pro\" \/>\n<meta property=\"og:description\" content=\"South Korea\u2019s financial watchdog announced on Wednesday a series of regulatory measures to prevent the improper sale of high-risk financial products, particularly equity-linked securities (ELS). 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