[Asia Economy Reporter Kim Hyo-jin] As the Financial Supervisory Service's (FSS) disciplinary procedures against banks that sold Lime Asset Management funds are set to begin soon, controversy over the FSS's authority to discipline bank CEOs has resurfaced.
Earlier this year, the court pointed out that the FSS's decision to impose severe disciplinary actions on some bank CEOs in connection with the overseas interest rate-linked derivative-linked fund (DLF) incident might have been an overreach, and related hearings are currently underway.
With the court reviewing the legitimacy of the FSS's actions, it is expected that if similar cases arise, additional litigation and confusion will be inevitable.
According to the financial sector on the 23rd, the FSS plans to initiate disciplinary procedures as early as next month against banks that sold Lime funds, including Woori Bank and Shinhan Bank. FSS Chairman Yoon Seok-heon recently told reporters, "If possible, I think we should start the disciplinary procedures within December."
The FSS will review the banks' explanatory materials regarding the prosecutor's opinion and soon send preliminary notices containing the level of discipline. Based on this, the FSS's Disciplinary Committee is expected to hold a disciplinary hearing next month.
Considering previous disciplinary cases involving securities firms, the general consensus inside and outside the banking sector is that severe disciplinary actions such as reprimands for 'inadequate internal controls' are highly likely to be imposed on bank CEOs. Woori Financial Group Chairman Sohn Tae-seung and Shinhan Bank President Jin Ok-dong may be subject to these sanctions.
The issue lies in the ongoing legal dispute over the FSS's authority. In March, Chairman Sohn filed a provisional injunction with the Seoul Administrative Court requesting the suspension of the effectiveness of the 'DLF discipline' against FSS Chairman Yoon Seok-heon. The court accepted Sohn's request based on the interpretation that the authority to issue reprimands under the Governance Act lies with the Financial Services Commission (FSC).
This suggests that the FSS cannot impose certain levels of discipline, such as reprimands, except for executives of mutual savings banks.
The court is currently proceeding with the main lawsuit filed by Chairman Sohn to cancel the sanctions along with the provisional injunction, and the dispute over disciplinary authority continues during this process.
Financial Services Commission Chairman: "Considering Procedural Legitimacy"
In this regard, at last month's National Assembly Financial Services Committee audit, FSC Chairman Eun Sung-soo responded to a question from People Power Party lawmaker Yoon Jae-ok about this controversy by saying, "In the past, it was customary to delegate reprimands for bank CEOs to the FSS Chairman."
Chairman Eun added, "The FSC disciplines CEOs of financial investment companies, while reprimands for bank CEOs are delegated to the FSS, so the level of disciplinary authority varies by sector," and said, "We will consider procedural legitimacy and other aspects regarding whether it is appropriate to entrust the FSS with disciplining bank CEOs."
The court is expected to conclude the hearing process for the lawsuit filed by Chairman Sohn after the second hearing on the 11th of next month. Considering the time the court will take to deliberate based on both parties' arguments, a final decision is anticipated in early next year.
A financial sector official said, "There could be an ambiguous situation where the court's judgment comes immediately after the FSS's disciplinary decision on the Lime case," adding, "Although it is a first-instance ruling, significant confusion could arise within the financial authorities and the financial sector."
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