KIKO Compensation Council Still Quiet... Some Voices Say 'Progress in Discussions'

No Follow-up Working Meetings Since Last Month's Kickoff
"Visible Internal Results Needed for Joint Discussion"

[Asia Economy Reporter Kim Hyo-jin] The bank consultative body set up to handle additional dispute self-adjustment issues related to the foreign exchange derivative product KIKO (KIKO) incident has remained quiet for over a month since its launch. While concerns about breach of trust, which have been consistently raised, remain high among banks, there are also voices suggesting some progress in discussions centered around certain banks.

According to the banking sector on the 11th, the consultative body consisting of 10 banks including Shinhan, Woori, Hana, KB Kookmin, NH Nonghyup, Daegu, Citi, SC First, HSBC, and IBK Industrial Bank held a kick-off meeting at the Financial Supervisory Service (FSS) on the 8th of last month but has not met even once in over a month. A bank official participating in the consultative body said, "No future schedule has been set." Another bank official explained, "There needs to be some visible internal outcome in any direction for joint practical discussions to be possible."

The FSS Dispute Mediation Committee recommended last December that Shinhan, Woori, Hana, Daegu, Citi, and KDB Industrial Bank, which sold the KIKO product, compensate four companies for losses ranging from 15% to 41% due to incomplete sales, but all banks except Woori Bank rejected the recommendation. Subsequently, a consultative body was formed under the leadership of the FSS to autonomously discuss compensation plans for an additional 145 companies eligible for relief.

The banks that rejected the recommendation cited the reason that "compensating after the 10-year statute of limitations for damage claims under civil law has passed could constitute breach of trust harming shareholder interests." The FSS maintains the position that there are no civil or criminal issues with the banks' compensation, based on the fact that Korea has not introduced a derivative lawsuit system.

The derivative lawsuit system allows shareholders of a parent company holding a certain percentage of shares to directly hold the subsidiary's management legally accountable when the parent company does not hold the subsidiary's management responsible for misconduct. The FSS received this interpretation from four law firms at the time of the dispute mediation decision and conveyed it to the banks, reiterating this explanation at last month's consultative body meeting.

'Some Banks Consider Forward-Looking Review'
Differences in Understanding Among Banks May Cause Delays

In this regard, it is known that some banks have recently sought additional advice from law firms consulted by the FSS or requested specific legal analysis materials for review. A banking sector official said, "There are voices among banks to find a magnanimous solution to somehow resolve the issue," adding, "Some are conducting discussions premised on compensation and examining reasons why it should not be done."

However, the official predicted, "Since the banks' positions have already been clearly established, the possibility of forward-looking discussions rapidly gaining momentum at once is low."

The varying levels of understanding of the issue among banks is also a factor making it difficult for the consultative body to speed up discussions immediately. An FSS official explained, "Banks that have not previously reviewed the dispute mediation plan essentially have to study the issue from scratch, so there is a large variance in the progress of discussions by bank." Considering that it took one and a half years to create the dispute mediation plan for four companies, the FSS's position is that it is premature to judge the consultative body at this point, only one month after its launch.