In the legal dispute over incomplete sales of Hong Kong H-Index ELS (equity-linked securities), NH NongHyup Bank secured a second consecutive victory against investors, following its first-trial win. As courts continue to rule in favor of banks, attention turns to whether the banking sector's penalty, already reduced to approximately 6 trillion won, will face further reductions during deliberations by the Financial Services Commission.
According to legal and financial industry sources on the 7th, the Second Civil Division of Changwon District Court (Presiding Judge Kim Ju-mi) dismissed the appeal filed by investor A, who had sued NH NongHyup Bank over Hong Kong H-Index ELS investments, in a second-trial hearing held last month on the 13th. This marks another victory for the bank, following its first-trial win on October 30 of last year.
The fact that the bank won not only in the first trial but also in the second trial could become a variable for the Financial Services Commission, which is currently reviewing sanction levels for Hong Kong ELS cases. While civil liability for damages and administrative sanctions are separate matters, there is significant overlap in the underlying factual circumstances—such as whether the duty of explanation was fulfilled and the investor's level of understanding of the product—as well as legal application. It appears that within the Financial Services Commission itself, some view it as difficult to completely separate the second-trial judgment from the sanction procedure.
The Financial Supervisory Service submitted a draft sanction plan of approximately 14 trillion won for the banking sector to the Financial Services Commission in February. After the Commission requested supplementary information on factual circumstances and applicable laws and legal principles, the Financial Supervisory Service adjusted factors such as the intent behind violations and lowered the penalty to approximately 6 trillion won in June. The Commission plans to finalize sanction levels after considering additional factors, including the grace period during the early implementation of the Financial Consumer Protection Act (Financial Consumer Protection Law), voluntary compensation by banks, and post-incident remediation efforts.
Investor A invested a total of 123 million won in two specific monetary trust ELS products containing the Hong Kong H-Index at NH NongHyup Bank in February and March 2021. When the Hong Kong H-Index plummeted, A lost approximately 66.4 million won. A filed a lawsuit claiming that NH NongHyup Bank failed to properly explain the product details and risks and did not directly prepare or provide the relevant subscription documents. In the second trial, A argued that the bank's liability ratio should be set at 70% by applying the calculation criteria for voluntary compensation standards to his case.
The first-trial court ruled that it was difficult to conclude that NH NongHyup Bank sufficiently explained the product details and investment risks to A. However, the court noted that A had worked in a financial institutional investor capacity for over 20 years, held relevant financial qualifications, and had repeatedly invested in similar ELS products, indicating he fully understood the product structure and risks.
NH NongHyup Bank is not the only bank to have received a victory judgment. The Twenty-Second Civil Division of Seoul Central District Court dismissed a claim for damages worth over 1.4 trillion won filed by a Hong Kong ELS investor against KB Kookmin Bank in January. Several ongoing trials remain. In the Seventeenth Civil Division of Seoul Central District Court, lawsuits involving 15 investors suing National, Shinhan, Hana, and NH NongHyup Banks totaling 3.6 billion won, and another lawsuit filed by 19 investors against National, Shinhan, and NH NongHyup Banks totaling 1.9 billion won, are currently underway.
Beyond civil judgments, the Financial Services Commission is also examining the balance between voluntary compensation and sanctions. Key considerations include how much of the approximately 14 trillion won already voluntarily compensated by the banking sector should be reflected in penalties, and what level of combination between monetary sanctions worth hundreds of billions of won and institutional investor sanctions should be adopted. If these factors are comprehensively reflected during the regular meeting expected as early as the end of this month, there is a possibility that penalties could fall below 6 trillion won.
in FINANCE
