Flipping Not Possible... 'D-7' DLS Sanction Hearing, Banks Face Final Showdown 'Baesujin'

"No Plan B" Woori and Hana Bank's Full-Scale Battle in DLS Disciplinary Hearing
FSS Holds Two Sessions on 16th and 30th... Even If Son Tae-seung and Ham Young-joo Receive Reprimands, Sanctions Remain Effective Despite Appeals
Banks' Counterattack Limited to Injunctions and Lawsuits to Lower Sanction Severity

[Asia Economy Reporter Kwon Haeyoung] It has been identified that, aside from court litigation, there is virtually no card for banks to counterattack if the Financial Supervisory Service (FSS) confirms severe disciplinary action against the CEOs of Woori and KEB Hana Bank, who sold overseas interest rate-linked derivative-linked securities (DLS). The banks are in a desperate situation where they have no 'Plan B' but to devote all their efforts to the disciplinary review committee. Woori and Hana Banks plan to make an all-out effort to lower the level of sanctions, judging that the FSS's grounds for severe CEO discipline are weak.

According to financial authorities and the financial sector on the 9th, if the FSS confirms CEO disciplinary action in the DLS disciplinary review, even if Woori and Hana Banks file an objection, the sanctions will remain effective. Earlier, on the 26th of last month, the FSS sent a prior notice to the two banks informing that Sohn Tae-seung, Chairman of Woori Financial Group (also CEO of Woori Bank), and Ham Young-joo, Vice Chairman of Hana Financial Group (former CEO of Hana Bank), could receive the maximum disciplinary action, a written warning.

An FSS official said, "If the disciplinary review result is contested, the CEO can only file an objection with the FSS, and cannot request a suspension of the enforcement of the sanctions," adding, "Even if an objection is filed, enforcement is not suspended, so the sanctions against the CEO remain effective." This means that if CEOs receive a written warning, merely filing an objection requesting a retrial cannot suspend the effect of the sanctions.

Since this DLS sanction is directly linked to the governance of Woori and Hana Financial Groups, the effectiveness of the sanctions is a significant issue. If a written warning is received, Sohn, whose term as chairman of Woori Financial Group expires this March, cannot be reappointed. Ham, a candidate for the next chairman of Hana Financial Group, will find it difficult not only to be reappointed in December but also to challenge for the next chairman position. The more urgent side is Woori Financial Group. In Sohn's case, whose term expiration is imminent, even if he initiates a procedure to contest the sanctions against the FSS after the confirmation of severe disciplinary action, the sanctions' effect cannot be suspended.

In the financial sector, it has been anticipated that if severe CEO disciplinary action is issued, Woori Bank will receive the inspection report containing the sanctions in early to mid-February, file an objection within a month, and Woori Financial Group will confirm Sohn's reappointment at the March shareholders' meeting. The surprise announcement by Woori Financial Group's chairman nomination committee on the 30th of last month, deciding Sohn as the next chairman candidate, is seen to be based on this calculation.

A financial sector official said, "If Sohn receives severe disciplinary action, merely filing an objection to the supervisory authority will not allow reappointment," adding, "Ultimately, a provisional injunction to suspend the enforcement of the FSS sanctions must be filed with the court, but if it reaches this stage, it could be seen as an all-out war, which would be a heavy burden for the bank."

As a result, if severe disciplinary action is confirmed, Sohn's only means to be reappointed is to file a provisional injunction to suspend enforcement with the court. Even if an administrative lawsuit is filed, it takes time until the result is out. Hana Bank also has more time from the perspective of holding company governance than Woori Bank, but going as far as an administrative lawsuit is burdensome.

For these reasons, banks are expected to desperately strive to lower the level of CEO disciplinary action at the two disciplinary reviews scheduled for the 16th and 30th.

It is anticipated that a fierce legal battle will unfold over the grounds for sanctions between the banks and the FSS inspection department. The FSS argues that establishing 'effective' internal control standards is necessary, but regarding the reasons for CEO disciplinary action, there are already criticisms that the grounds for sanctions are weak. The FSS cited insufficient internal controls and excessive management pressure as grounds in the prior notice. However, banks have internal control regulations in place, and the DLS sales profits in question amount to about 4 billion KRW, which is 1% of the annual asset management fee income of both Woori and Hana Banks last year, making it difficult to interpret as excessive management pressure. As DLS became a national concern, there is also a view that the FSS practically over-sanctioned the CEOs in consideration of public opinion.

This content was produced with the assistance of AI translation services.