FSS Tells Banks to Compensate DLF Victims for up to 80% of Losses

The dispute settlement committee of the Financial Supervisory Service (FSS) has told banks to compensate investors in their derivatives-linked fund (DLF) products for up to 80 percent of the losses. The reimbursement rate is the highest since the Dong Yang fiasco in 2014.

The FSS said on Dec. 5 that the decision was made at a meeting of the FSS Dispute Settlement Committee, which was attended by DLF victims and representatives from Woori Bank and KEB Hana Bank. The committee set the compensation rate based on six previous cases where investors suffered financial losses due to the malpractices of banks. It set the minimum reimbursement rate at 40 percent.

The highest reimbursement rate of 80 percent was applied to a 79-year-old dementia patient with hearing loss and no investment experience. The maximum reimbursement rate for the victims of the commercial paper (CP) and corporate bond fraud by Dong Yang Group was 70 pecent. The FSS said, “The DLF fiasco was the result of misselling, which can be attributed to the banks' excessive pursuit of profits and poor internal control. We took this into account in setting the high compensation rate.”

The FSS has decided to present a compensation guideline based on the six sample cases to banks for a total of 276 applications that DLF victims have filed for dispute settlement. If banks and victims come to an agreement, it will have the same effect as a court ruling and the dispute will be settled. Victims may, however, refuse to reach an agreement and may file a complaint with the FSS again or file a lawsuit with court. Woori Bank and KEB Hana Bank said that they would do their best to follow the decision of the Dispute Settlement Committee.