South Korea’s regulator is launching a wider probe into local banks and brokers which sold exotic notes linked to Chinese stocks amid concerns that the securities may saddle investors with heavy losses.

Authorities will start investigating 12 institutions on Monday to determine if there was any wrongdoing over the sale of equity-linked securities that are tied to the Hang Seng China Enterprises Index, according to a statement from the Financial Supervisory Service. The biggest sellers among the firms to be probed are KB Kookmin Bank and Korea Investment & Securities Co., it added.

The watchdog said it uncovered several issues during a two-month inspection, including the practice of pushing bankers to aggressively market high-risk notes that are hard for retail investors to understand. The firms will be held "strictly accountable” for any illegal activities, according to the statement.