South Korea's Financial Supervisory Service tightens ELS rules after Hong Kong H-index losses

The Financial Supervisory Service (FSS) announced a series of reforms to prevent a repeat of the incomplete‑sale scandal involving Hong Kong H‑index equity‑linked securities (ELS) that caused large investor losses. The new measures require securities firms to conduct self‑checks during product design, use a consumer‑protection checklist, and submit detailed risk assessments for the underlying assets. A "knock‑in barrier proximity alert" will notify investors when the price of an ELS’s underlying asset comes within 10 percentage points of the loss threshold, and the consumer‑protection officer will be empowered to halt product launches deemed unsafe.

Product‑approval committees must now include consumer‑protection, compliance and sales representatives, and any product whose risk profile worsens due to market changes must be re‑reviewed. Post‑sale disclosures will be expanded to show option details and price ranges, and the frequency of internal audits for high‑risk products will be increased from annually to quarterly. The Financial Investment Association will amend its self‑regulatory rules by September, and the alert system is slated for implementation within the year.

FSS deputy head Seojwae Seo said, "The loss suffered by investors in the Hong Kong H‑index ELS and the widening market volatility highlight the need to establish a comprehensive investor‑protection system centered on preventive measures."