On August 5, 2026, the Financial Supervisory Service (the “FSS”) held the Roundtable on Regulatory Improvements for Derivatives-Linked Products (the “Roundtable”) with the Korea Financial Investment Association (the “KOFIA”) and executives of major securities companies. The FSS announced a set of regulatory improvement measures (the “Improvement Measures”) aimed at strengthening securities companies’ autonomy and accountability at every stage of the derivatives-linked product lifecycle, from design and review through sales and post-sale management.

The Improvement Measures were developed from March to June 2026 by the Task Force on Regulatory Improvements for the Protection of Investors in Derivatives-Linked Securities and Bonds (the “Task Force”), consisting of the FSS, the KOFIA and ten major securities companies as a means to proactively protect investors against the backdrop of recent investor losses on Hong Kong H-Index equity-linked securities (“ELS”), heightened volatility in the domestic equity market and continued growth in the issuance of derivatives-linked products. At the Roundtable, the participants discussed the details of the Improvement Measures and further specified the implementation schedule and plans for future regulatory improvements.

The Improvement Measures consist of two key components: (i) establishing an ex ante self-assessment framework at the product design and review stage, and (ii) ensuring the timely provision of information and strengthening internal controls at the sales and post-sale management stages. The details of the Improvement Measures at each stage are as follows.
 

• Product Design Checklist: The internal division of a securities company in charge of overall financial consumer protection must prepare and provide a product design checklist to the manufacturing division. The manufacturing division must complete the checklist as a mandatory step in the product design process and determine whether the product satisfies the sameness condition (i.e., similarity with previously approved products), in which case a review by the Product Approval Committee may be omitted.

• Systematic Management of Underlying Assets: The manufacturing division must establish operating standards for managing the underlying asset pool and selecting underlying assets. In accordance with such standards, it must manage the underlying asset pool and select the underlying assets to be included in a product, taking into account the product’s characteristics and market conditions.

• Product Approval Committee Operating Standards: The Product Approval Committee must include representatives from the consumer protection, compliance and sales divisions, and the Chief Consumer Officer must be granted the authority to place a product launch on hold.

• Enhanced Review by Product Approval Committee: The Product Approval Committee must conduct a review where: (i) a product is determined not to be the same as a previously approved product, taking into account the type of underlying asset, settlement currency and loss multiplier, (ii) an underlying asset pool is newly established or a previously approved matter is changed, or (iii) a product’s investment risk has increased significantly due to changes in market conditions or otherwise, even if the product was previously approved.
   

• Add and emphasize the matters requiring investor attention in relation to derivatives-linked bonds in both the investor risk disclosures and the overview section of the prospectus;

• Present the annualized and actual rates of return in parallel; and

• State in the summary of key matters of the prospectus whether the underlying asset price has recently reached its highest or lowest level, together with material options such as issuer calls.
   

At the post-sale management stage, securities companies must enhance the timely provision of information to investors and strengthen their post-sale internal control functions through the following measures:
 

• Knock-In Proximity Alert: A one-time alert will be sent when the underlying asset price of a highly complex ELS comes within ten percentage points of the knock-in barrier.

• Enhanced Guidance on Interim Redemption: Where early redemption is deferred, investors will be informed of the availability of interim redemption and the applicable procedures. Where a product is redeemed at a profit, investors will also be provided with cautionary guidance aimed at preventing automatic reinvestment.

• Self-Inspection of Highly Complex Products: For highly complex products, the self-inspection cycle will be shortened from annual to quarterly, and the board reporting cycle from annual to semiannual.

• Management of Unsuitable Sales Ratios: For highly complex products, securities companies must internally establish and manage unsuitable sales ratios, which may vary depending on factors such as the distribution channel and the investor’s age.
   

[Korean Version]