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Financial watchdog chief warns financial firms of seeking short-term gains

Finance 11:30 December 02, 2019

SEOUL, Dec. 2 (Yonhap) -- South Korea's financial watchdog chief expressed concerns Monday over financial companies' practices of seeking short-term gains, citing the recent mis-selling of derivative products that led to huge losses for investors.

Financial Supervisory Service (FSS) Gov. Yoon Suk-heun said in a meeting with executives of foreign financial firms that such practices "could hurt investor confidence, which in turn could undermine financial companies' long-term growth."

He asked financial companies to pursue sustainable growth with customers.

His comments came as the FSS said it discovered 790 suspected cases of improper sales of derivatives linked to overseas interest rates that carry the risk of losing nearly all the money invested in them.

Some financial firms were suspected of failing to offer enough information to investors or of violating internal rules that protect elderly customers when they sold the derivatives, the FSS said.

The FSS probed Woori Bank, KEB Hana Bank, brokerage firms and asset managers that sold the derivatives products linked to overseas interest rates.

The derivatives are structured to track the performance of constant maturity swaps -- swaps that allow the purchaser to fix the duration of received flows on a swap of Treasury bonds of the United States or Britain or the yield of Germany's 10-year state bonds.

Financial watchdog chief warns financial firms of seeking short-term gains - 1

The products suffered heavy losses as bond yields in the U.S., Britain and Germany have unexpectedly sunk amid speculation that central banks in major economies may aggressively slash their interest rates.

The risk of losses will be higher if the United States and Britain cut interest rates again this year.

In the case of options that are linked to Germany's 10-year government bonds, local investors are likely to report a 95 percent loss, according to FSS officials.

Yoon also said the government will make efforts to improve regulations that restrict foreign financial companies' access to the South Korean markets.

The number of foreign financial companies in South Korea stood at 165 as of the end of June, compared with 164 at the end of 2014.


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