Shinhan Bank to Accept FSC Dispute Mediation Results... Will Disciplinary Measures Be Reduced? (Comprehensive)

Temporary Board Meeting Scheduled for the 20th... Likely to Accept Dispute Resolution Results
Emphasis on Victim Relief Efforts at Disciplinary Hearing on the 22nd... Possibility of Reduced Disciplinary Measures

Shinhan Bank Headquarters Exterior View

FSS: Shinhan Bank to Compensate 69-75% for Lime Fund Sales

[Asia Economy Reporter Lee Kwang-ho] Two investors who suffered losses after investing in Lime Asset Management's private equity fund through Shinhan Bank will receive compensation amounting to 69-75% of their losses.

The Financial Supervisory Service (FSS) announced on the 20th that it held a dispute mediation committee regarding Shinhan Bank's sales of Lime funds and decided on compensation ratios for two cases of incomplete sales.

The committee determined compensation ratios of 69% and 78% respectively for the two Shinhan Bank Lime fund investors.

The committee recognized Shinhan Bank's liability for damages in both cases, citing negligence in investor protection efforts that caused the losses. The bank was found to have either failed to properly verify investors' risk profiles or falsified information while selling high-risk products.

The minimum compensation rate, known as the basic compensation ratio, is 55%. First, a 30% compensation ratio was applied for violations of suitability principles and explanation obligations by branch sales staff, consistent with standard dispute mediation cases. An additional 25% was added considering the head office's negligence in investor protection.

The committee ordered Shinhan Bank to compensate at the highest rate of 75% for selling risky products to elderly investors seeking principal protection. For the case where the investment profile of a small business seeking safe products was arbitrarily recorded as 'aggressive investor' and ultra-high-risk products were sold, a 69% compensation was recommended.

The FSS plans to facilitate voluntary adjustments with compensation ratios ranging from 40% to 80% for other investors who did not appear before the committee. The ratios will vary depending on whether the seller violated suitability principles and the investor's investment experience, among other factors.

The committee's compensation decision is not binding; both the claimant and the bank must accept the mediation proposal within 20 days for it to take effect.

An FSS official stated, "If the mediation process proceeds smoothly, the relief for the unpaid 273.9 billion KRW (458 accounts) due to redemption delays is expected to be concluded."

Jin Ok-dong, President of Shinhan Bank

Post-incident Efforts Recognized, Possible Reduction in Disciplinary Measures

Although not yet finalized, Shinhan Bank is expected to hold an extraordinary board meeting on the 20th to decide whether to accept the committee's mediation proposal. If the dispute mediation is confirmed, recognition of post-incident efforts could help reduce the disciplinary level for the CEO at the sanction review committee scheduled for the 22nd.

Previously, Sohn Tae-seung, Chairman of Woori Financial Group, received a reduced sanction from a pre-notified 'suspension of duties' to a 'reprimand' at the sanction review committee, considering his efforts to assist victims.

Similarly, if Shinhan Bank agrees to the committee's results, it is anticipated that reductions in sanctions for Cho Yong-byoung, Chairman of Shinhan Financial Group, and Jin Ok-dong, President of Shinhan Bank, may follow.

Chairman Cho and President Jin were pre-notified of 'cautionary warning' and 'reprimand' respectively due to negligence in establishing internal control standards related to Lime fund sales. If sanctions are reduced by one level after accepting the mediation proposal, as in Woori Bank's case, President Jin's sanction would be lowered to a 'cautionary warning' (minor disciplinary action).

Financial institution executives face five levels of disciplinary measures: dismissal recommendation, suspension of duties, reprimand, cautionary warning, and caution. Receiving a reprimand or higher (serious disciplinary action) results in a 3-5 year ban on employment in financial institutions. Therefore, if President Jin's sanction is lowered to a minor disciplinary action, it would not restrict his future reappointment as bank president or candidacy for Shinhan Financial Group chairman.

A Shinhan Bank official said, "We respect the dispute mediation committee's results and plan to promptly proceed with compensation to protect consumers and restore customer trust after final review and resolution at the board meeting."