Shinhan Bank, Will Lime Sanction Severity Be Reduced... Focus on 'Consumer Relief Efforts'

FSS Subcommittee Meeting Held... A Crucial Week for Shinhan's Fate

[Asia Economy Reporter Kwangho Lee] On the 19th, the Financial Supervisory Service (FSS) will hold a Dispute Mediation Committee (DMC) meeting regarding Shinhan Bank, the seller of Lime Asset Management funds. If Shinhan Bank is recognized for its efforts to protect investors by accepting the DMC's mediation proposal, the level of disciplinary action at the sanction review committee scheduled for the 22nd is likely to be reduced. In particular, if President Jin Ok-dong, who received a prior notice of a reprimand, is acknowledged for efforts to remedy damages and the disciplinary level is lowered to a minor disciplinary action, there will be no restrictions on his future reappointment as president or candidacy for Shinhan Financial Group chairman.

According to financial authorities and the financial sector, the FSS will hold the DMC meeting this afternoon to conduct dispute mediation regarding the Lime funds sold by Shinhan Bank.

Although the DMC principle is to conduct dispute mediation for investment products with confirmed losses, to expedite victim relief, it has promoted dispute mediation in a 'post-settlement' method if the bank agrees. This method considers the unpaid amount as the loss amount and applies the DMC's compensation ratio to provide priority compensation. Then, when repayment is made, the seller deducts the excess compensation from the repayment amount and pays the balance to the investor.

In February, the DMC decided compensation ratios of 65-78% for Lime funds with unconfirmed losses sold by Woori Bank and Industrial Bank of Korea. The basic compensation ratios were 55% for Woori Bank and 50% for Industrial Bank of Korea. Earlier, at the end of last year, KB Securities received a compensation guideline of 40-80% (basic compensation ratio 60%) for Lime funds with unconfirmed losses. The financial sector expects that Shinhan Bank will also be recommended a compensation ratio around a maximum of 80%.

Shinhan Bank is expected to accept the dispute mediation results and emphasize its efforts to protect victims at the sanction review. A Shinhan Bank official said, "We are waiting for the DMC's decision, so we are not in a position to predict what conclusion will come out or how we will respond. Although there is time between the DMC and the sanction review, we do not yet know whether the board of directors will be convened."

Chairman Cho Yong-byeong and President Jin were given prior notices of a cautionary warning and a reprimand, respectively, for neglecting their duty to establish internal control standards related to the Lime funds. To lower the disciplinary level notified in advance, active disputes regarding the duty to establish internal control standards pointed out at the sanction review will take place, but whether the recommendation derived from the DMC meeting held that day is accepted will also be an important variable.

Previously, Woori Bank was the first to accept the DMC recommendation to fully refund the principal to investors of the Lime Trade Finance Fund (Pluto TF-1). It also accepted recommendations to compensate two Lime fund investors 68% and 78% of their losses, respectively, demonstrating active efforts to compensate victims.

If Shinhan Bank's efforts to remedy damages are recognized at the sanction review, the disciplinary level for President Jin Ok-dong will be lowered from a major disciplinary action (reprimand) to a minor disciplinary action (cautionary warning). Although the disciplinary action itself cannot be avoided, if the major disciplinary action that currently restricts reemployment in financial companies for a certain period after the term ends is avoided, there will be no restrictions on future reappointment as president or candidacy for Shinhan Financial Group chairman.