S. Korea to review risky investments after losses linked to China

South Korea plans to review the sale of high-risk investments following a probe that revealed banks missold China-linked structured products to retail investors, resulting in over $4 billion in losses, Bloomberg reported on Wednesday.

Kim Soyoung, vice chairman of the Financial Services Commission, told Bloomberg News that they are exploring system improvements to prevent similar incidents and will assess where these products should be sold.

The Financial Supervisory Service is considering banning the sale of risky products due to misrepresentation by some banks and brokerages. Losses from securities tied to the Hang Seng China Enterprises Index are estimated at $4.4 billion this year.

Kim stressed the importance of stricter enforcement to prevent mis-selling and ensure suitable buyers for financial products.

South Korea is a significant market for complex structured products, particularly equity-linked securities popular among middle-aged and elderly Koreans seeking additional income.

The regulator will also focus on reinforcing internal compliance rules at financial firms to address excessive incentives given during product sales to boost profits.

The Hang Seng-linked ELS products have sparked debate over the balance between innovation and sales commissions.

The Hong Kong-traded index of Chinese stocks has dropped by almost 50 per cent in the last three years, reflecting the economic challenges in China.