Final Sanction Hearing on the 30th for the 'DLF Incident'... Fate of Woori and Hana Bank CEOs?

On the 16th, when the Financial Supervisory Service's Disciplinary Committee regarding the overseas interest rate-linked derivative-linked fund (DLF) incident, which caused massive principal losses, was held, members of the DLF Victims Countermeasure Committee and the Financial Justice Solidarity held a press conference in front of the Financial Supervisory Service in Yeouido, Seoul, demanding severe disciplinary actions against Woori Bank and Hana Bank. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Jo Gang-wook] The third disciplinary review committee that will determine the fate of the top executives of Woori Financial Group and Hana Financial Group in connection with the overseas interest rate-linked derivative-linked fund (DLF) scandal, which caused massive principal losses, will be held on the 30th. Following the sessions on the 16th and 22nd, this disciplinary review is highly likely to be the final procedure to decide the level of penalties for Woori and Hana Banks, the banks that sold the DLFs, and the executives of the two financial companies.

According to financial authorities on the 27th, the Financial Supervisory Service (FSS) will hold a disciplinary review at 2 p.m. on the 30th to discuss the corrective measures following the inspection results of Woori and Hana Banks.

The first disciplinary review held on the 16th started at 10 a.m. Normally, the FSS disciplinary reviews, which are held about twice every two weeks, usually begin at 2 p.m., but on that day, the start was moved forward by about four hours. This was interpreted as a sign that a fierce battle would unfold since the CEOs had been pre-notified of severe disciplinary actions.

The FSS has already pre-notified Chairman Sohn and Vice Chairman Ham of the severe disciplinary action of a 'written warning.' The core grounds for the sanctions are 'lack of internal control' and 'excessive management pressure.' However, the problem lies in the possibility that the legal basis for the sanctions may be insufficient. The Financial Services Commission (FSC) announced last year that it would establish grounds to hold CEOs and executives responsible to prevent recurrence of consumer damage like the DLF scandal, but the 'Financial Company Governance Act Amendment Bill,' which serves as the basis for this, is currently pending in the Political Affairs Committee.

The first disciplinary review, conducted in a two-sided manner where the FSS investigation department and the banks under sanction each presented their opinions, ended around 9 p.m. Sohn Tae-seung, Chairman of Woori Financial Group, and Ham Young-joo, Vice Chairman of Hana Financial Group, attended the disciplinary review in person and made their arguments. The review for KEB Hana Bank reportedly continued until 7 p.m. The review for Woori Bank then proceeded for about two hours but concluded without a decision. Originally, the Woori Bank disciplinary review was scheduled to start around 4 p.m., but the Hana Bank review only finished after 7 p.m. Chairman Sohn arrived at the FSS 11th-floor main conference room where the disciplinary review was held around 2:30 p.m. but had to wait for more than four and a half hours.

The second disciplinary review held on the 22nd focused intensively on the inspection agenda for Woori Bank. Sohn Tae-seung, who had appeared at the first disciplinary review as both Chairman of Woori Financial Group and Woori Bank, appeared again to make his arguments. The two-sided review (where the FSS investigation department and the bank each present their opinions) for Woori Bank lasted about four hours. Although the two-sided review procedure for Woori Bank's agenda was completed, it did not proceed to the full deliberation to determine the level of sanctions. The FSS stated in a notification message, "The corrective measures for the Woori Bank inspection results were reviewed, but due to prolonged discussions, it was decided to reconsider at the next meeting."

At the third disciplinary review scheduled for the 30th, the disciplinary review committee members are expected to enter full deliberations to finalize the level of sanctions for the two banks and their executives. Since the FSS has notified the two banks to appear, there is a possibility that Chairman Sohn and Vice Chairman Ham, who appeared at previous disciplinary reviews, will appear again.

The final decision on the level of sanctions for the banks and their executives ultimately rests with the Financial Services Commission. This is because the authority to interpret the legal grounds for sanctions lies with the FSC. The timing of the enforcement of sanctions also depends on the FSC's decision. In the case of Woori Bank, the timing is particularly sensitive due to Chairman Sohn's reappointment issue. Separate from the possibility of raising objections through judicial procedures in the future, sanctions against executives are confirmed once the disciplinary review passes a resolution and the FSS chief approves it. If severe sanctions against institutions (banks) are decided at the disciplinary review, the agenda must be submitted to the FSC for resolution. The effect of sanctions occurs when the parties receive an inspection notice from the FSS.

The DLF scandal involves both individual and institutional sanctions, so the results of sanctions against executives and institutions are notified simultaneously after the FSC regular meeting. This means that the official disciplinary effect against Chairman Sohn will be delayed until the FSC regular meeting's resolution. Therefore, if the FSC regular meeting is held before the Woori Financial Group's general shareholders' meeting and severe sanctions are notified, it could hinder Chairman Sohn's reappointment.

A financial authority official said, "This time, since individual and institutional sanctions are combined, if severe disciplinary actions are involved, the final results may take about a month to be notified due to the need to go through the FSC regular meeting and other procedures."