Financial Authorities' Determined Remarks by Lee Bok-hyun to Establish Order

"Effectively Telling Not to Sue" Bank Sector Interpretation
Financial Authorities' Status Declined During Moon Jae-in Government
View That It Intends to Restore Authorities' Prestige

Lee Bok-hyun, Governor of the Financial Supervisory Service, is delivering opening remarks at a meeting with bank presidents held on the 18th at the Bankers' Hall in Jung-gu, Seoul. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Sim Nayoung] On the 18th, the inside of Woori Financial Group was shaken twice. Once by Chairman Sohn Tae-seung’s voluntary resignation, and again by Financial Supervisory Service (FSS) Governor Lee Bok-hyun’s remark that ‘the next chairman should decide on the lawsuit.’ The first was seen as an inevitable event that would happen someday, but the second caught many off guard. The financial sector’s assessment is that “the government’s (官) control is becoming even stronger.”

Governor Lee’s exact words to reporters that day were as follows: “Since Chairman Sohn decided not to seek reappointment, eventually another chairman will come. Considering that the administrative lawsuit decision by Woori Bank regarding the Lime Fund sales sanctions is ultimately related to his personal interests, wouldn’t it be more reasonable and fair for the next chairman to decide on whether to proceed with the administrative lawsuit?”

Woori Bank hesitated. It had originally been actively considering filing an administrative lawsuit against the Financial Services Commission (FSC). The FSC imposed sanctions last November related to the Lime incident. Woori Bank was penalized with a three-month suspension on new private fund sales and a fine of 7.66 billion KRW. However, KB Securities, which was also a Lime fund seller, became a barometer. On the 12th, KB Securities was acquitted by the court on charges of knowingly selling defective products. Woori Bank believed it had a good chance of winning if it filed an administrative lawsuit against the FSC’s decision.

Banking Sector Interprets Lee Bok-hyun’s Remarks as a ‘Warning Not to Sue’

Son Tae-seung, Chairman of Woori Financial Group, is attending the meeting between the Financial Supervisory Service Governor and Financial Holding Company Chairmen held on the morning of the 3rd at the Bankers Hall in Myeongdong, Jung-gu, Seoul.

Nevertheless, directly opposing the government’s momentum was too much. That morning, Woori Bank said “the possibility of a lawsuit is quite high,” but by the afternoon, it stepped back, saying “it will be difficult to make a lawsuit decision immediately.” Chairman Sohn, who was reported to be proceeding with a personal lawsuit separate from the bank, also stated to Asia Economy that evening, “I have not decided.” Bank insiders commonly interpret Governor Lee’s remarks as a hidden warning not to sue.

Until Chairman Sohn’s resignation, the FSC Chairman and FSS Governor relentlessly pressured him. “It is very uncomfortable that instead of reflecting and improving after an incident, there is constant discussion about lawsuits.” (January 5) “I respect Cho Yong-byeong, the resigned Chairman of Shinhan Financial Group.” (December 21 last year) “The government’s intention is that the CEO must take responsibility.” (December 20 last year). The financial sector believes there is a reason why the authorities are disciplining banks. It is because the authority of financial regulators had fallen to the lowest point during the Moon Jae-in administration.

Financial Authorities’ Lost Prestige During the Moon Administration

Rewinding to the fall of 2017. At that time, Jang Ha-sung, Chief Presidential Secretary for Policy, Choi Jong-ku, Chairman of the FSC, and Choi Heung-sik, Governor of the FSS, were applying comprehensive pressure for the voluntary resignation of Kim Jung-tae, Chairman of Hana Financial Group, who was pursuing a third term. There were mixed evaluations of his performance during his tenure, and criticism that he had not made noticeable efforts to cultivate a successor pool.

At a Blue House meeting around that time, the situation changed. President Moon Jae-in, in a meeting attended by Chief Secretary Jang, drew a line by saying, “It is not desirable for the government to intervene in personnel matters of companies in which it does not hold shares,” and as a result, Chairman Kim was able to serve a third term, according to stories circulating in the financial sector.

One bank executive said, “Since that incident, during the Moon administration, financial authorities could not intervene in financial companies,” adding, “If the financial authorities tried to intervene in personnel or management, someone would report to the Blue House, saying that the president’s will to not intervene was violated, so to put it bluntly, the FSC and FSS almost withdrew their hands.”

Financial Authorities Trying to Regain Authority

Banks began to openly defy the authorities’ decisions from that point. In 2020, Hana Bank and Woori Bank filed administrative lawsuits against the financial authorities’ heavy sanctions related to losses from overseas interest rate-linked derivative-linked funds (DLF). Woori Bank even experienced a victory. Last month, the court ruled in the DLF case that “Woori Bank had established internal control standards including legal matters, and since it cannot be said that the internal control standards were ineffective, sanctions cannot be imposed on the grounds that the bank failed to establish internal control standards,” supporting Chairman Sohn.

Although the dominant view is that “the FSS attacked the banks carelessly using the Governance Act as a yardstick, providing an excuse to the banks,” it was very unusual for financial companies to file lawsuits in opposition to the financial authorities’ disciplinary decisions based on past financial practices.

Only once before, during President Lee Myung-bak’s administration in 2009, did former KB Financial Group Chairman Hwang Young-ki file an administrative lawsuit. This was after he was sanctioned by the authorities for a 1.6 trillion KRW derivative investment loss that occurred while he was CEO of KB Bank. Chairman Hwang voluntarily resigned early, saying, “The organization should not be disrupted.”

A financial sector official said, “At that time, the CEO took moral responsibility by resigning and filed a ‘personal lawsuit,’ not an ‘institutional lawsuit,’ which is clearly different from the atmosphere in recent years,” adding, “The current FSC Chairman and FSS Governor are persistently using Woori Financial Group as an example, which suggests that the financial authorities are trying to reestablish their authority.”