Financial authorities are considering sanctions in earnest after the completion of on-site inspections this week
“We will change our business practices with clear financial responsibility.”
How big will the fine be? A worried person in the banking sector
As the financial authorities’ on-site inspection of Hong Kong’s H-index stock-linked securities (ELS) mis-selling is coming to an end, there is a prevailing sentiment within the financial authorities that “banks should be held financially responsible in line with the profits they earn.” Fines are the most effective means of sanctions commensurate with financial damage to consumers.
According to the financial sector on the 7th, the Financial Supervisory Service will complete the on-site inspection of Hong Kong ELS on the 8th. The Financial Supervisory Service’s on-site inspection began last January and has recently been extended two more times.
First, the Financial Supervisory Service begins compensation procedures after completing an on-site inspection. A tug-of-war with the bank is expected on the 11th over whether to compensate autonomously according to the liability sharing standards.
For areas where voluntary compensation is not provided, banks and consumers must negotiate a compensation plan in earnest at a subcommittee. If an agreement is not reached in the subcommittee, consumers must file a civil lawsuit directly.
In addition to the compensation process, the Financial Supervisory Service plans to review the legal principles for sanctions. The Financial Supervisory Service has already discovered circumstances of incomplete sales, such as violation of conformity and violation of explanation obligations, during on-site inspection. As this constitutes a violation of the Financial Consumer Protection Act, institutional sanctions such as status sanctions on bank executives and employees and fines may be considered.
In particular, financial authorities are focusing on holding banks accountable through fines. Sanctioning only bank employees means that it is possible to ‘cut the tail’ to the level of self-discipline at the company level. Holding banks financially responsible is the most practical and effective form of sanction.
A government official said, “Inflicting financial damages on the seller can definitely be a way to hold the seller accountable,” and added, “Bad business practices can only change if the bank is held accountable for the profits it receives.”
Banks are worried. This is because a fine equivalent to a bank’s profits ultimately means anywhere from hundreds of billions of won to trillions of won.
A backlash from bank shareholders is expected due to the large fine. This is because large amounts of funds are being withdrawn, which can have a negative impact on investment in new businesses as well as soundness.
In addition, banks are questioning the effectiveness of punitive fines.
An official from the banking sector said, “Wouldn’t the fines paid by banks ultimately be returned to the government budget?” and “Rather, the banks’ financial difficulties could cause setbacks in negotiations with consumers.”
However, if banks accept the preemptive voluntary compensation plan previously presented by the financial authorities, the fines could be reduced significantly.
In response, the Financial Supervisory Service said, “The level of specific sanctions is determined based on the inspection results,” and “Nothing has been confirmed yet.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.