Financial authorities are reportedly considering a "compensation-first, settlement-later" approach to assist victims of Homeplus's incomplete sales of electronic short-term commercial paper. Under this plan, compensation would be provided before regulatory sanctions are finalized or restructuring procedures conclude, with post-event adjustments made once losses are confirmed. While there is no disagreement that victim relief is urgent, requiring financial institutions to compensate before liability is established could undermine the principle of accountability, which holds that responsible parties must bear corresponding burdens.
In principle, compensation for incomplete sales of financial products should occur only after liability is clarified through court rulings or dispute resolution committees and damages are confirmed. However, every time a financial incident occurs, there has been repeated pressure on financial institutions to provide voluntary compensation before legal liability is finalized. The Hong Kong Hang Seng Index-linked equity-linked securities (ELS) crisis is a prime example. At that time, authorities urged banks to reach settlements with victims and provide compensation before court judgments. Although banks expressed reluctance, citing risks of prosecution for breach of trust or shareholder lawsuits if they accepted voluntary compensation, they ultimately yielded to the authorities' pressure.
Courts emphasize the principle of self-responsibility in financial product investments. Earlier this year, the Seoul Central District Court ruled against a plaintiff who had invested in Hong Kong ELS products and suffered losses, dismissing their 1 billion won damage claim against the selling bank. This decision reflected a broad interpretation of investors' responsibility. It serves as a case demonstrating that authorities must exercise caution when urging compensation without thoroughly examining the factual circumstances and scope of liability in individual cases.
The principle of self-responsibility in financial markets applies not only to investors but also to all entities involved in the design, issuance, operation, and sale of financial products. Each party must bear responsibility commensurate with their role and obligations. If selling companies provide advance compensation to investors, they should seek recourse from other participating firms such as asset management companies or issuing and lead banks. In this scenario, financial authorities step back, leaving separate legal disputes to determine the extent of each company's liability. While victim compensation may be expedited, the clarification of actual responsibility is pushed further into the background.
Most importantly, repeatedly demanding advance compensation every time a financial incident occurs risks elevating ad hoc authority judgments above laws and regulations. This could erode predictability and foster moral hazard.
What authorities should do is clarify liability through swift investigations and thorough fact-finding. Additionally, they must urgently improve systems to clearly define the roles and responsibilities of companies involved at each stage of financial product development beforehand. The principle that responsible parties bear compensation obligations must not be overturned under the guise of protecting victims.
in OPINION
