South Korea Plans to Strengthen Regulation on High-Yield ELS Starting in September: Requires Brokers to Promptly Warn Investors of Principal Loss Risks

As reported by Bloomberg, South Korean financial regulators plan to enhance supervision over structured products including ELS starting next month. Brokerages will be required to issue warnings to investors when products near the principal loss trigger line (knock-in), and to reassess product design and distribution when changing market conditions lead to a marked increase in risk. With the Korean stock market experiencing significant volatility recently, retail investors' enthusiasm for high-risk investing has not noticeably waned. Following regulatory tightening on single-stock leveraged ETFs, a portion of capital has shifted to equity-linked securities (ELS) offering high "coupons". Data published by the Korea Financial Investment Association shows that ELS sales in South Korea reached 3.5 trillion won in July, marking its highest level in over three years since April 2023. ELS products underpinned by shares of Samsung Electronics and SK hynix were the primary drivers of this growth.