Korea Says ‘Uneven Playing Field’ Exposing Elderly to Losses

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(Bloomberg) -- South Korean regulators criticized banks for selling complex and super-risky derivative products to individuals, accusing the financial institutions of thinking more about their interest than protecting investors.

There’s an “uneven playing field” in financial markets for individual investors getting into the products, Won Seung-yeon, senior deputy governor of Financial Supervisory Service, told reporters Tuesday. They may not be fully informed that the derivatives carry the risk of buyers losing almost all their money.

There were problems in product design, manufacture and sales of derivative-linked securities or funds tied to overseas rates, including sellers giving improper advice, not following sales procedures, and a lack of risk management and internal controls, Won said at a briefing on interim findings of its probe.

Individual investors hunting for higher returns as interest rates dropped in Korea were the predominant buyers of the derivative products, and the elderly made up a significant portion, regulators’ data suggest. Non-professional investors comprised 98.9% of the about 795 billion won ($663 million) of overseas rate-linked products outstanding as of Aug. 7, and people 60 or older made up about 44% of the total, according to FSS data.

The regulator is continuing to investigate whether products were sold without enough information provided to buyers or whether they had design flaws, and will further probe Woori Bank and Hana Bank, both of which sold the products, Won said.

Hana Bank apologized to its customers that suffered losses from so-called DLS tied to overseas rates, and it will seek various measures to protect investors, the lender said in a statement Tuesday. Woori Bank also said in a statement last week that it will actively seek ways to protect its customers in dispute reconciliation.

©2019 Bloomberg L.P.

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