Financial Services Commission to Decide Disciplinary Measures at This Month's Regular Meeting
FSS Likely to Impose Severe Sanctions Following Reexamination of Lime Fund
Prevailing View: Incumbent CEOs Park Jeong-rim and Jeong Young-chae Unlikely to Be Reappointed
As the Financial Supervisory Service (FSS) begins a re-examination of the Lime Fund, attention is growing on the disciplinary measures against the CEOs of securities firms that sold the Lime and Optimus funds. Park Jeong-rim, President of KB Securities; Jeong Young-chae, President of NH Investment & Securities; and Yang Hong-seok, Vice Chairman of Daishin Securities, have received heavy disciplinary actions from the FSS. With only the Financial Services Commission's (FSC) final decision remaining, the situation is unfavorable for them as the FSS's additional inspections have uncovered new violations related to the Lime and Optimus funds, and inspections of the selling firms are also underway.
From the left, Park Jeong-rim, President of KB Securities; Yang Hong-seok, Vice Chairman of Daishin Securities; and Jeong Young-chae, President of NH Investment & Securities.
According to the financial investment industry on the 1st, disciplinary proposals against KB Securities, Daishin Securities, Shinhan Investment Corp., and NH Investment & Securities regarding the incomplete sales of Lime and Optimus funds are pending only the FSC plenary meeting review.
The disciplinary review process by financial authorities goes through the stages of 'FSS Disciplinary Committee → Agenda Subcommittee → FSC Securities and Futures Commission → FSC Agenda Subcommittee → FSC Regular Meeting Resolution.' Fines and penalties for financial companies are reviewed in advance by the Securities and Futures Commission, but disciplinary actions against executives or business suspensions of institutions are deliberated and resolved by the FSC.
In November 2020, the FSS held a disciplinary committee meeting and decided on heavy disciplinary actions of 'reprimand warnings' for Park Jeong-rim and Yang Hong-seok, citing violations such as failure to establish internal control standards (violation of the Financial Company Governance Act) related to the Lime Fund incident. In March 2021, Jeong Young-chae also received a 'reprimand warning' heavy disciplinary action for violations including failure to establish internal control standards related to the sale of the Optimus Fund.
The disciplinary levels by financial authorities are divided into five stages: 'recommendation for dismissal, suspension of duties, reprimand warning, cautionary warning, and caution.' If an executive receives a heavy disciplinary action of reprimand warning or higher, they are restricted from employment in financial companies for 3 to 5 years after their term ends. If the FSC plenary meeting resolves reprimand warnings for Park Jeong-rim, Yang Hong-seok, and Jeong Young-chae, not only will their reappointment be impossible, but reemployment in financial firms will also be barred.
The final decision on the disciplinary actions against the securities firm CEOs is likely to be made within this month. Typically, the FSC regular meetings are held every other Wednesday, scheduled for the 13th and 27th this month. However, the agenda's submission has not yet been confirmed. If the agenda is soon submitted, it is expected that the final decision will be made at the regular meeting within this month.
Initially, the financial sector widely expected the disciplinary levels against them to be mitigated, reflecting their active efforts to compensate investors in line with the financial authorities' stance. However, since early this year, the FSS has been conducting additional inspections related to the three major funds (Lime, Optimus, and Discovery) incidents, and on the 24th, uncovered new violations, creating a variable. In particular, the FSS has started a re-examination of Mirae Asset Securities and NH Investment & Securities, the selling firms, regarding preferential redemption suspicions related to the Lime Fund. It is also anticipated that the results related to this will influence the disciplinary levels. The FSS plans to continue expanding re-examinations of selling firms as necessary concerning the fund incidents.
Fundamentally, the FSS's re-investigation concerns the operating companies, and the selling securities firms are not directly involved. However, as additional investigations extend to the selling firms, the results may affect the related disciplinary levels, according to the FSC's position. An FSC official stated, "The relevant subcommittee is currently in progress, and the results will be discussed after hearing opinions." Previously, the FSC held special subcommittee meetings in April and June, summoning the CEOs of the Lime and Optimus fund selling firms for testimony. They reportedly pleaded for leniency, stating, "We have strengthened investor protection and internal controls and have worked diligently to compensate victims."
Park Jeong-rim's term was extended by one year at the end of last year, marking his fourth year as President of KB Securities. He attracted attention as the only affiliate company president among the six candidates on the first shortlist for the KB Financial Group chairman appointment, but he was not included in the second announcement. Jeong Young-chae, President of NH Investment & Securities, successfully secured a third consecutive term in March last year, maintaining his position for six years since the Optimus Fund incident. Yang Hong-seok, who was President of Daishin Securities during the Lime Fund incident, was promoted to Vice Chairman in 2021, with his term lasting until March 31, 2024.
Park Jeong-rim and Jeong Young-chae's successful reappointments were largely due to the strong internal group stance that management performance should be considered despite disciplinary risks. Moreover, there was an expectation at the time of reappointment that the heavy disciplinary levels would ultimately be reduced. However, with the reemergence of the private equity fund incomplete sales issue, tension in the securities industry has heightened.
A financial authority insider familiar with the matter said, "Considering the FSC's changed stance toward the CEOs due to the FSS's additional inspections, it is practically difficult to expect a reduction in disciplinary levels, and heavy disciplinary actions are widely anticipated," adding, "Moreover, the prevailing view is that further delaying the disciplinary decision would be a burden for the financial authorities, so a conclusion is expected within this month."
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