Seoul: South Korea's financial watchdog announced plans to provide renewed guidelines for financial institutions aimed at simplifying the understanding of investment risks associated with their products. This initiative is part of efforts to enhance consumer protection following recent financial incidents, including cases of improper sales.

According to Yonhap News Agency, the Financial Supervisory Service (FSS) presented these plans during a debate session in Seoul with lawmakers, experts, and civic groups, where financial consumer protection measures were discussed. FSS Governor Lee Chan-jin highlighted the issues in the consumer protection system exposed by the improper sales of equity-linked securities (ELS) tracking the Hong Kong H index in his opening remarks.

In early 2024, investors at five banks experienced significant losses amounting to 4.6 trillion won (US$3.22 billion) from their combined 10.4 trillion-won investment in ELS products linked to Hong Kong's H index, which suffered a sharp decline. ELS are hybrid securities that link their returns to the performance of underlying equities, including stock indices.

Following these events, the FSS has mandated local banks to provide compensation for part of the losses due to improper sales of ELS products. The FSS aims to create new guidelines on fund disclosures to help consumers easily grasp key investment risks and anticipate potential losses associated with financial products.

Additionally, the FSS plans to enhance oversight during the fund-creation process and revise existing fund reporting systems to ensure potential risks are clearly and comprehensively communicated.