Financial Supervisory Service Pre-Notifies Lime Sales Company of 'CEO Severe Disciplinary Action'

[Asia Economy Reporter Minji Lee] The Financial Supervisory Service (FSS) has pre-notified disciplinary measures to the CEOs of sales companies in connection with the 'Lime Incident,' which involved a massive redemption suspension amounting to about 1.6 trillion won.

According to financial authorities and the financial investment industry on the 7th, the FSS sent pre-notifications of disciplinary measures related to the Lime Incident to three sales companies?Shinhan Financial Investment, KB Securities, and Daishin Securities?late in the afternoon the previous day. An FSS official stated, "It is true that notifications were sent to the sales companies yesterday," but added, "However, we cannot disclose specific details for each sales company."

It is known that the CEOs of these three companies were notified of severe disciplinary measures. This is interpreted as the FSS focusing on the fact that the sales companies not only failed to properly establish internal control standards but also did not adequately inform investors of the potential for losses.

Typically, the severity of sanctions against executives of financial companies is divided into five levels: recommendation for dismissal, suspension of duties, reprimand, cautionary warning, and caution. Usually, receiving a reprimand or higher is classified as a severe disciplinary action. Once a severe disciplinary action is confirmed, the CEO is barred from employment in the financial sector for 3 to 5 years, making reappointment impossible. Regarding this, a sales company official said, "We cannot confirm the fact that we received the notification or any related details," remaining tight-lipped.

The level of disciplinary action against the sales companies will be decided at the Sales Securities Company Disciplinary Committee (Disciplinary Committee) on the 29th. The disciplinary committee, which had been delayed for about a month due to the prolonged COVID-19 pandemic, will resume. Although not yet finalized, it is planned to proceed with a large-scale hearing system (Daesimje) where both the FSS department in charge and the disciplinary subjects appear simultaneously to present their opinions.

Earlier, on the 20th, the disciplinary level for Lime Asset Management will be determined. Financial company sanctions are divided into five levels: cancellation of registration/authorization, business suspension, corrective orders, institutional warnings, and institutional cautions. Considering the illegality revealed so far, the industry is certain that Lime Asset Management will receive the severe sanction of registration cancellation.

The amount of redemption suspension in Lime Asset Management's private funds is 1.6679 trillion won. Among the four Lime master funds, the Pluto TF-1 Fund (Trade Finance Fund) was found, according to the FSS inspection, to have concealed its insolvency despite being aware of it, and sold the fund. Consequently, the FSS Dispute Mediation Committee decided that the sales companies must refund the full principal amount to investors.

After the securities companies' disciplinary actions, disciplinary committees for bank sales companies such as Shinhan Bank and Woori Bank are scheduled to be held. Last month, Yoon Seok-heon, Governor of the Financial Supervisory Service, said, "Although the timing cannot be specified, we will first resolve the securities companies related to the Lime sanctions and then move on to the banks."