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(LEAD) Watchdog reprimands top executives of 2 major banks over product misselling

All News 23:15 January 30, 2020

(ATTN: UPDATES with details in paras 3-4, 8)

SEOUL, Jan. 30 (Yonhap) -- South Korea's financial watchdog on Thursday issued reprimands to top executives of two major commercial lenders over improper selling of derivatives-linked products.

The disciplinary action by the Financial Supervisory Service (FSS) deals a blow to Woori Financial Group Chairman Sohn Tae-sung, named to lead the group for another term, as he is barred from running for reelection as the lender's head for three years.

Sohn was certain to win a second term at Woori Financial Group's general shareholders' meeting in March, but he can't keep his job if the disciplinary action is finalized by the Financial Services Commission before the general shareholders' meeting.

Ham Young-joo, vice chairman of Hana Financial Group, also received the same reprimand, a move that could keep him from seeking the top post of the banking group in March 2021 when the current chairman and CEO is set to end his term.

Ham was KEB Hana Bank CEO at the time of the alleged misselling of derivative-linked products.

(LEAD) Watchdog reprimands top executives of 2 major banks over product misselling - 1

The so-called derivatives-linked fund (DLF) products were designed to return large profits when the interest rates of specific countries, including Britain and Germany, stayed above a certain level.

Many South Korean consumers have reported losses of up to or over 90 percent of their investments after interest rates or bond yields in the major economies plunged.

Also on Thursday, the FSS decided to ask the Financial Services Commission to impose a penalty of about 20 billion won (US$16.7 million) on Woori Bank and KEB Hana Bank while suspending some of their operations for six months.

The FSS has said the local banks may have missold the products by failing to provide adequate information or explain the high risks involved to their consumers, telling the heads of the two lenders in advance that they may face "serious" disciplinary actions.

The financial watchdog has recommended that the two local banks provide compensation for up to 80 percent of their customers' losses from the misselling of derivatives linked to overseas interest rates.

Since August, financial authorities have probed Woori Bank, KEB Hana Bank, brokerage firms and asset managers that sold the derivatives-linked products.

In the case of certain derivatives linked to 10-year German state bond yields, some investors lost 98 percent of their principal, as bond yields in Germany unexpectedly sank.

entropy@yna.co.kr
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