The Financial Supervisory Service (FSS) of South Korea has announced a reduction in penalties for five banks involved in the incomplete sale of Hong Kong equity-linked securities (ELS), lowering the total fine from 1.9 trillion won to 1.4 trillion won. This decision came after a thorough review process involving multiple hearings where the banks presented their cases. The FSS cited the banks' efforts for post-sale remediation and preventive measures against future occurrences as reasons for the reduced penalties, although the final sanction amounts are still subject to approval by the Financial Services Commission.

The scandal stems from significant losses that occurred in 2023 and 2024 when the Hong Kong H Index plummeted, leading to a massive write-down for investors. The ELS products promised returns as long as the underlying assets did not fall below a predetermined threshold. However, once the index dipped into the so-called 'knock-in' zone, many investors faced substantial principal losses. The index was once valued at 12,230 points but fell to a mere 5,481 points, resulting in 4.6 trillion won in confirmed losses out of a total outstanding balance of 15.9 trillion won in ELS sales.

The FSS identified that the banks failed to adequately communicate the risks associated with ELS products and the possibility of principal loss when selling to consumers. This regulatory response aims to protect consumers from further harm and hold banks accountable for their sales practices. FSS Chairman Lee Chan-jin has emphasized the seriousness of consumer harm resulting from the situation, underlining the need for stricter regulations and transparent communication from financial institutions regarding investment risks.