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Banks negligent in derivative sales, FSS says

Oct 02,2019
The financial regulator said the major banks were negligent in selling dangerous derivative-linked investment products that have collapsed in value, leaving more than 3,000 investors billions of won poorer.

The Financial Supervisory Service (FSS) said on Tuesday that 20 percent of the derivative-linked securities (DLSs) and derivative-linked funds (DLFs) tracking the interest rates of 10-year German treasury bonds and swap rates of British pounds and the dollar may have been improperly sold.

“The preliminary determination was made based on the documents provided by the financial institutions,” said Kim Dong-sung, deputy governor at the FSS.

“So, the dubious cases confirmed so far primarily fell short of fulfilling requirements in terms of documentation for the purchase of the funds, but more cases could be found in the future even if procedural requirements were met,” the deputy governor said.

The financial institutions under investigation include: Woori Bank, KEB Hana Bank, IBK Securities, NH Investment & Securities, Hana Financial Investment, Ryukyung PSG Asset Management, KB Asset Management and Meritz Asset Management.

Woori Bank and KEB Hana Bank are considered the major focus for regulators, as they sold 795 billion won ($661.9 million) worth of the products.

An overall loss of 351.3 billion won is expected, according to the announcement.

The regulator also vowed to push for reform of internal systems so that the financial institutions strengthen monitoring of high-risk investment instruments.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]