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Korean primary bankers will be restricted in the counter sale of equity-linked trust (ELT) products by keeping them to underlying indices of major markets like S&P, public offerings and less-exotic or risky securities.

Under a new guideline from the Financial Services Commission (FSC) to better protect consumers, banks will be allowed to sell trust products that track derivative-linked securities (DLS) with 1 or under loss multiple and are publicly issued. The products will be limited to those that track five major stock indices as underlying asset – Kospi200, S&P500, Eurostoxx50, HSCEI, and Nikkei225.

ELT sales volume cannot exceed current level of 37 trillion won to 40 trillion won ($34 billion) which is the outstanding amount as of end of November.

Under the plan, banks will be obliged to deliberately inform investors about the investment and present them with investment leaflet on high-level products tracked by trust products, in addition to basic product information. Only certified investment advisors on derivative products will be allowed to sell trust products.

The financial authority, meanwhile, labeled high-level, high-risk financial products as those complex ones that include financial derivatives whose principal loss ratio could exceed 20 percent. Products listed on the stock exchange or those that are traded between institutional investors will be excluded from the range of high-level financial products.

Banks will be allowed to sell high-level, high-risk products under conditions if consumers are guaranteed 80 percent or higher principal even under complex product structure.

Simple structured products such as real investment products such as stocks, bonds; properties or equity, bond, and mixed funds; and funds that simply track stock indices will not be included as high-level products even if consumers can lose 20 percent or more principal.

The latest measures come after the financial regulator considered outright ban on banks from selling trusts, following massive retail losses on products following overseas government debt.

Banks petitioned hard in fear of losing 40 trillion won market amid waning profitability from protracted low interest environment.

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