Shinhan and Hana Banks Request Financial Supervisory Service to Further Extend Deadline for KIKO Compensation Plan Decision

[Asia Economy Reporter Kim Min-young] Banks have once again postponed their decision on whether to accept the compensation plan for the foreign exchange derivative currency option contract 'KIKO.'

According to the financial sector on the 6th, Shinhan Bank plans to request an extension of the deadline to respond to the Financial Supervisory Service's (FSS) KIKO dispute mediation acceptance. This is the fourth extension request. A Shinhan Bank official stated, "Since the outside directors have changed, more time is needed for review."

Hana Bank also plans to request an extension of the deadline on the same day. A Hana Bank official said, "The composition of the board of directors has recently changed, and we are focusing on financial support related to the novel coronavirus (COVID-19), so more time is needed to review the KIKO issue."

Daegu Bank, which must decide whether to accept the recommendation, is reportedly having difficulty even convening a board meeting due to the spread of COVID-19.

In December last year, the FSS Dispute Mediation Committee ruled that six banks that sold the KIKO product must compensate four companies for 15-41% of their actual losses. According to the compensation plan, Shinhan Bank must pay 15 billion KRW, Hana Bank 1.8 billion KRW, and Daegu Bank 1.1 billion KRW to the affected companies.

Previously, Woori Bank accepted the FSS mediation and completed compensation of 4.2 billion KRW, while KDB Industrial Bank (2.8 billion KRW) and Korea Citibank (600 million KRW) decided not to accept the compensation plan. These banks judged that the Dispute Mediation Committee's finding of a breach of the duty to explain has legal grounds that could be contested based on factual circumstances.

Overseas, there have been several cases where banks actively compensated for incomplete sales of KIKO-like products. The UK Financial Conduct Authority (FCA) ordered compensation of 2.1 billion pounds (approximately 3.3 trillion KRW) related to 13,936 interest rate hedge product cases (45% of the total) from 2013 to 2016, requiring banks to compensate. Japanese banks, through the Japan Bankers Association (JBA), compensated about 20-30% of the damages related to 1,169 foreign exchange derivative product cases (76.6% of the total) from 2011 to 2017.