Chairman Sohn Receives 'Disciplinary Warning'... Woori Bank Faces Partial 3-Month Work Suspension
Hana and Shinhan Banks on Edge in Financial Sector... Legal Battle Expected to Prevent Action
Growing Criticism of Financial Authorities' Accountability "Shifting Blame for Supervisory Failure"
[Asia Economy reporters Kwangho Lee and Seungseop Song] The Financial Supervisory Service (FSS) has imposed consecutive heavy sanctions on Sohn Tae-seung, Chairman of Woori Financial Group, in connection with the suspension of redemptions of Lime Asset Management funds, inevitably raising leadership and governance risks at Woori Financial. The financial sector points to the financial authorities' lax supervision as a major cause, criticizing that all responsibility is being shifted to the distributors without any reflection on the supervisory failures.
According to financial authorities and the financial sector on the 9th, the FSS's disciplinary committee held its third meeting yesterday afternoon regarding Woori Bank and decided to issue a "reprimand" to Chairman Sohn, who was the bank president at the time of the fund sales. Although the previously notified "suspension from duty" was mitigated by recognition of efforts to restore consumer damages, the heavy sanction was maintained. Woori Bank was also subjected to a three-month "partial suspension of business" institutional heavy sanction.
Sanctions against financial company executives are divided into five levels: caution, cautionary warning, reprimand, suspension from duty, and dismissal recommendation. Among these, reprimand and above are classified as heavy sanctions. Those receiving reprimand or higher face a 3 to 5-year restriction on employment in financial companies. However, the final confirmation of the disciplinary action will be decided through deliberation by the Securities and Futures Commission and resolution at the Financial Services Commission's regular meeting. There is a possibility that the level of sanction may be further reduced.
At the third disciplinary hearing, the FSS and Woori Bank fiercely disputed key issues such as improper solicitation. The FSS argued that Woori Bank sold the Lime funds despite knowing their insolvency, citing improper solicitation as grounds for heavy sanctions. The FSS emphasized that Woori Bank had prepared internal reports recognizing the risk of losses in Lime funds in advance and that this was reported to management including Chairman Sohn, yet the fund sales were not halted.
On the other hand, Woori Bank countered that the assessment of loss risk and insolvency of the funds are separate matters. While acknowledging that internal reports were prepared, the bank argued that the responsible department only measured the risk of losses and it was not a situation where the funds could be definitively labeled as insolvent. They also stressed that the contents were not reported to management.
Although heavy sanctions could not be avoided, the disciplinary committee members lowered the level of sanction for Chairman Sohn by one step, accepting Woori Bank's efforts to restore consumer damages. In May last year, related regulations were revised to include "sufficient compensation for financial transaction victims and efforts to restore damages" as mitigating factors. Woori Bank had accepted the dispute mediation committee's recommendation to fully refund principal to investors in the Lime trade finance fund and also accepted the dispute mediation recommendation for post-settlement of losses in Lime's undetermined loss funds.
Victims of the Lime Fund are holding a rally urging dispute mediation for victim protection regarding the Lime Fund. Photo by Jinhyung Kang aymsdream@
With this sanction, Chairman Sohn will receive heavy sanctions from the FSS for two consecutive years. In January last year, Sohn received a reprimand for violating internal control standards under the Financial Company Governance Act related to the Derivative Linked Fund (DLF) incident. At that time, Sohn filed a provisional injunction to suspend the effect of the sanction with the court, which was accepted, allowing him to succeed in his reappointment. He is currently pursuing a main lawsuit to nullify the sanction itself.
The industry expects that if this sanction is finalized as is, Woori Bank will again file an administrative lawsuit.
A Woori Bank official said, "Since decisions by the Securities and Futures Commission and the Financial Services Commission remain, our primary goal is to provide maximum explanation there to reduce the level of sanction."
The financial sector is opposing the heavy sanction decision against Chairman Sohn. A financial sector official pointed out, "It is hard to avoid the impression that the financial authorities are shifting all responsibility to cover up their supervisory failures in the private equity fund incident."
Professor Sung Tae-yoon of Yonsei University’s Department of Economics advised, "The biased standards against management rather than financial companies may lead to administrative lawsuits and provisional injunctions. Since the financial authorities also bear supervisory responsibility, it is important to establish a thorough supervisory system to prevent recurrence."
Meanwhile, the FSS decided to discuss Shinhan Bank and Shinhan Financial Group again at the fourth disciplinary hearing scheduled for the 22nd of this month, as the deliberation was not completed today. Shin Ok-dong, President of Shinhan Bank, has been preliminarily notified of a heavy sanction of reprimand, and Cho Yong-byeong, Chairman of Shinhan Financial Group, has been preliminarily notified of a light sanction of cautionary warning.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
