President Park Jung-rim 'Suspended from Duty' Why?..."KB Securities Involved in Both Designing and Selling Lime Fund"

Financial Services Commission Decides 3-Month Suspension... CEO Responsible for Internal Control Compliance
KB Financial Group Faces De Facto Disgraceful Resignation Ahead of Year-End Personnel Changes

On the 29th, the Financial Services Commission (FSC) decided to impose a '3-month suspension' on Park Jeong-rim, President of KB Securities, in connection with the Lime and Optimus incomplete sales incidents. This decision was based on the judgment that employees were involved in both designing and selling the Lime fund's 'incomplete sales.' Additionally, the failure to properly establish internal control standards for consumer protection also influenced the severity of the disciplinary action.

Once the FSC notifies the sanction, President Park's duties will be immediately suspended. However, his term, which ends next month, will remain unchanged. Whether he will file an administrative lawsuit is uncertain. On the same day, the FSC decided to issue a reprimand warning to Jung Young-chae, President of NH Investment & Securities, and a cautionary warning to Yang Hong-seok, Vice Chairman of Daishin Securities. The levels of sanctions for financial company executives are divided into five stages: △recommendation for dismissal △suspension of duties △reprimand warning △cautionary warning △caution. Among these, disciplinary actions of reprimand warning or higher are classified as severe sanctions, as they restrict reappointment and employment in the financial sector for 3 to 5 years.

Inside and outside the financial authorities, this decision is interpreted as emphasizing once again that financial companies must establish internal control standards not just at a formal level but substantively, and that the CEO must take responsibility for this.

At a regular meeting held on the same day, the FSC decided on a '3-month suspension' for Park Jeong-rim, President of KB Securities, regarding the Lime and Optimus incomplete sales incidents. With KB Financial Group's year-end personnel reshuffle approaching, President Park is effectively facing a dishonorable resignation.

Some interpret the FSC's decision on President Park as maintaining the original proposal rather than increasing the disciplinary level. Previously, the Financial Supervisory Service (FSS) internally recommended a 'suspension of duties' for President Park, and the Sanctions Review Committee, directly under the FSS Commissioner, concluded with a 'reprimand warning.'

The most important basis for the CEO disciplinary decision on that day was Article 24, Paragraph 1 of the Corporate Governance Act and related enforcement decrees and supervisory regulations. According to Article 24, Paragraph 1 of the Corporate Governance Act, "Financial companies must establish standards and procedures (internal control standards) that employees and executives of financial companies must comply with when performing their duties to comply with laws, manage soundly, and protect shareholders and stakeholders."

KB Securities is the distributor of the Lime fund and the securities company that provided total return swap (TRS) loans to Lime Asset Management. In particular, KB Securities employees designed the fund structure so that some Lime fund investors would incur losses. Financial companies have a duty to protect investors and must establish internal control standards for this purpose, but KB Securities was significantly lacking in this regard.

The FSC's judgment is also related to the ruling on the disciplinary appeal lawsuit of Sohn Tae-seung, former Chairman of Woori Financial Group. Previously, the FSS imposed a severe sanction on former Chairman Sohn for responsibility in the overseas interest rate-linked derivative-linked fund (DLF) incident. However, Sohn filed a lawsuit to cancel the sanction, winning in both the first and second trials.

An FSC official explained, "Although former Chairman Sohn won the administrative lawsuit, the judgment also specifies the role of financial companies and the CEO's responsibility regarding internal control," adding, "Since establishing internal controls is a matter for board resolution, the CEO is responsible."

The ruling related to former Chairman Sohn states, "While the legal entity responsible for establishing internal control standards is the financial company, the actual subjects fulfilling this obligation are natural persons such as the CEO and directors affiliated with the financial company," and "If the financial company fails to establish internal control standards under Article 24, the executives responsible for establishing these standards are subject to disciplinary measures under relevant regulations."

An FSC official emphasized, "Financial companies must establish the core contents to be included in internal control standards according to Article 24 of the Corporate Governance Act," and "To fundamentally resolve this incident, they must establish effective internal control standards on their own."