The Korean government is mulling to restrict banks from selling high-risk products after many Koreans – mostly seniors – were burnt from placing money in exotic derivatives upon urging from bankers.

The country’s top financial policy-making Financial Services Commission (FSC) on Friday told a National Assembly committee that it is reviewing a plan to restrict sales of high-risk financial products at primary lending banks to toughen protection for financial consumers.

It vowed to take strong punitive actions against those found guilty in ongoing probe on the heavy losses in derivatives connected to overseas securities.

Regulatory body, Financial Supervisory Service (FSS), has been examining disputes brought by retail investors facing massive losses from their investments linked to the German government bond 10-year government bond yield. So far, nearly 80 percent of those derivatives-backed funds, which was mainly sold by Woori Bank and KEB Hana Bank, already incurred losses.

Retail investors purchased 732.6 billion won ($613 million) worth of the problematic funds tied to the German 10-year government bond yield, or 89.1 percent of all sold, and institutions the rest.

The FSS has ordered financial institutions to remunerate if they had not given a full explanation about the risks to the financial instruments. As of Sept 25, a total of 179 applications have been filed for a settlement of disputes related to the high-risk products.

Currently, the FSS is having a comprehensive examination of the case, which includes reviewing the sale process from product designing to sales as well as the internal monitoring system at financial institutions.

The financial authorities plan to release the measures for improving the related financial system by the end of this month after consultation with outside experts.

By Kim Gang-rae and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]