FSS Holds Disciplinary Hearing for Woori and Shinhan Banks... Attention on CEO Sanction Decision

Reflecting Efforts to Remedy Consumer Damage... Importance of Consumer Protection Agency Evaluation

Financial Supervisory Service (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] Financial authorities are initiating disciplinary procedures against Woori Bank and Shinhan Bank in connection with the Lime Asset Management fund scandal. Severe disciplinary actions against the CEOs of both companies are anticipated, drawing significant attention from the financial sector. The final level of sanctions will reflect evaluations of efforts to compensate consumer damages.

The Financial Supervisory Service (FSS) Disciplinary Committee will convene on the afternoon of the 25th to discuss the disciplinary measures for Woori Bank and Shinhan Bank, the sellers of Lime funds.

Woori Bank and Shinhan Bank sold Lime funds worth 357.7 billion KRW and 276.9 billion KRW, respectively. The FSS judged that there were internal control failures and improper solicitation during this process, preliminarily notifying Chairman Sohn of a 'suspension from duty' and President Jin Ok-dong of a 'reprimand warning.' Cho Yong-byeong, Chairman of Shinhan Financial Group, received a minor disciplinary action of a 'cautionary warning.'

In May last year, the FSS revised the "Enforcement Rules on Inspection and Sanctions of Financial Institutions" to include "efforts to fully compensate consumers and restore damages" as a mitigating factor.

The FSS Financial Consumer Protection Department (FCPD) plans to attend the disciplinary hearing as a reference party to explain how much effort financial companies have made to compensate consumers.

Woori Bank accepted the recommendation of the FSS Dispute Mediation Committee to "refund 100% of the principal" to investors in the Lime Trade Finance Fund (Ploto TF-1).

Shinhan Bank pre-paid 50% of the principal to investors in the Lime Credit Insured (CI) Fund in June last year and agreed to settle the remaining amount later according to the compensation ratio recommended by the FSS Dispute Mediation Committee.

Accordingly, the FCPD is expected to express the opinion that Woori Bank has made sufficient efforts to compensate victims, while it may not present a favorable opinion regarding Shinhan Bank's victim compensation efforts.

A financial sector official forecasted, "Since the level of sanctions can change through the disciplinary committee's deliberations, the FCPD's evaluation will be significantly reflected."

Some in the financial sector also criticize the FSS's sanction decision process as opaque. A financial sector official said, "There is high distrust toward the FSS disciplinary committee because the principles of sanctions are not clear."