IBK Private Equity Fund Scandal Avoids Severe Punishment... Former Bank President Receives 'Cautionary Warning' (Comprehensive)

IBK Industrial Bank faces 1-month partial suspension of operations and fine
Former bank president and vice president receive respective warnings and 3-month salary cuts

[Asia Economy Reporter Park Sun-mi] Industrial Bank of Korea (IBK), which caused huge losses to investors by selling the problematic Lime Fund and Discovery Fund, avoided heavy disciplinary action at the Financial Supervisory Service's Sanctions Review Committee (hereinafter referred to as the Sanctions Review) held on the 5th.

The Financial Supervisory Service (FSS) decided on measures against IBK and its executives related to the incomplete sales of the Discovery Fund and Lime Fund at the Sanctions Review held from 2 p.m. that day.

The FSS decided to recommend to the Financial Services Commission a one-month partial suspension of business and a fine for IBK for violating the obligation to establish internal control standards (Financial Company Governance Act). It also decided to recommend a 'cautionary warning' to former IBK President Kim Do-jin and 'three months' salary reduction' to the former vice president, with related executives receiving sanctions ranging from 'three months' salary reduction to caution.'

The level of discipline corresponds to a minor disciplinary action. The sanctions for financial company executives are divided into five levels: dismissal recommendation, suspension of duties, reprimand, cautionary warning, and caution. Among these, reprimand or higher is classified as a heavy disciplinary action that restricts employment in financial companies for 3 to 5 years.

Former President Kim was reportedly notified of a heavy disciplinary action by the FSS earlier, but the level of discipline appears to have been lowered through two Sanctions Review meetings.

IBK sold 361.2 billion KRW and 318 billion KRW worth of Discovery US Fintech Global Bond Fund and Discovery US Real Estate Senior Bond Fund, respectively, from 2017 to 2019. However, the US asset manager failed to recover the bonds invested with the fund money, resulting in redemption delays of 69.5 billion KRW and 21.9 billion KRW, respectively. The Lime Fund, which caused a large-scale redemption suspension, was also sold for 29.4 billion KRW.

Regarding the Sanctions Review held that day, the FSS explained, "Considering that the subject of the review involved a significant issue causing social controversy due to numerous consumer damages, we held two meetings so far. We thoroughly listened to statements and explanations from many company representatives (including legal representatives) and the Inspection Bureau, carefully examined all facts and evidence, and made this decision through in-depth deliberation."

However, the Sanctions Review is an advisory body to the Governor of the FSS, and its results have no legal effect. The final sanctions will be confirmed through the FSS Governor's approval, Securities and Futures Commission review, and Financial Services Commission resolution according to the target of the measures.

Meanwhile, on the 3rd, the FSS pre-notified heavy disciplinary actions to the CEOs of Woori Bank and Shinhan Bank regarding the Lime Fund incident. Woori Financial Group Chairman Sohn Tae-seung received a suspension of duties, and Shinhan Bank President Jin Ok-dong received a reprimand as a heavy disciplinary action. Shinhan Financial Group Chairman Cho Yong-byeong was notified of a cautionary warning. The Sanctions Review for these banks is scheduled for the 25th of this month.