South Korea plans to strengthen regulation of high-yield ELS starting in September: requiring brokerages to promptly issue warnings to investors about potential principal losses

According to Bloomberg, South Korea's financial regulatory authorities plan to strengthen the regulation of structured products such as ELS starting next month. They will require brokerages to warn investors when products approach the principal loss trigger line (Knock-in) and to reassess product design and sales when market conditions lead to a significant increase in risk.

It is reported that the South Korean stock market has recently experienced significant fluctuations, but retail investors' enthusiasm for high-risk investments has not noticeably cooled. After regulatory tightening on leveraged ETFs for individual stocks, some investments have shifted to stock-linked securities (ELS) that offer high "coupon" rates. Data released by the Korea Financial Investment Association shows that in July, the sales volume of ELS in South Korea reached 35 trillion won, setting a new high in over three years since April 2023, with ELS products based on Samsung Electronics and SK Hynix stocks becoming the main drivers of growth.