South Korea's financial regulator is planning to punish the heads of two commercial lenders for their improper sales of derivatives-linked products, industry sources said Sunday.

According to the sources, the Financial Supervisory Service is set to punish the banks' heads in mid-January.

In October, the FSS said about 20 percent of 3,954 cases detected may violate law or internal rules in selling the derivatives, but further investigation is needed into the two leading lenders -- Woori Bank and KEB Hana Bank.

Some financial firms were suspected of failing to offer enough information to investors or of violating internal rules that protect elderly customers when they sold the derivatives, according to the FSS.

Since mid-August, the FSS has been probing Woori Bank, KEB Hana Bank, brokerage firms and asset managers that sold the derivatives products linked to foreign interest rates.

In late November, the FSS said the two banks should provide compensation for up to 80 percent of their customers' losses from a recent misselling of derivatives linked to overseas interest rates.

The derivatives are structured to track the performance of constant maturity swaps -- swaps that allow the purchaser to fix the duration of received flows on a swap of Treasury bonds of the United States or Britain or the yield of Germany's 10-year state bonds.

The products turned into losers as bond yields in the US, Britain and Germany have unexpectedly sunk amid speculation that central banks in major economies may aggressively slash their interest rates. (Yonhap)