"No Plan B"... Banks Brace for CEO Disciplinary Measures in DLS Sanctions Hearing (Comprehensive)

Financial Supervisory Service to Hold Two Meetings on 16th and 30th... Sanctions Remain Effective Despite Objections if Son Tae-seung and Ham Young-joo Receive Disciplinary Warnings
Banks' Only Countermeasures Are Court Injunctions and Lawsuits, Struggling 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 actions against the CEOs of Woori Bank and KEB Hana Bank, who sold overseas interest rate-linked derivative-linked securities (DLS). Banks are in a desperate situation where they have no choice but to devote all their efforts to the disciplinary committee without a 'Plan B.' Woori and Hana Banks plan to launch an all-out effort to lower the level of sanctions, judging that the FSS's grounds for severe CEO disciplinary action are weak.

According to financial authorities and the financial sector on the 9th, if the FSS confirms CEO disciplinary actions in the DLS disciplinary hearing, the sanctions will remain effective even if Woori and Hana Banks file objections. Previously, on the 26th of last month, the FSS sent preliminary notices 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 most severe disciplinary action, a written warning.

An FSS official said, "If the disciplinary hearing result is contested, the CEO can only file an objection with the FSS, and cannot apply for suspension of the enforcement of the sanction," adding, "Even if an objection is filed, enforcement is not suspended, so the sanction remains effective for the CEO." This means that if CEOs receive a written warning, simply filing an objection requesting a retrial cannot suspend the effect of the sanction.

Since this DLS sanction is directly linked to the governance of Woori and Hana Financial Groups, the effectiveness of the sanction is a critical issue. If a written warning is received, Sohn, whose term as chairman of Woori Financial Group expires in 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 is about to expire, even if he initiates a procedure to contest the sanction against the FSS, the sanction’s effect cannot be suspended once confirmed.

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

A financial sector official said, "If Sohn receives a severe sanction, simply filing an objection to the supervisory authority will not allow him to be reappointed," adding, "Ultimately, a provisional injunction to suspend the enforcement of the FSS sanction 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 a severe sanction 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 to get a result. 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 actions at the two disciplinary hearings 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 an 'effective' internal control standard is necessary, but regarding the reasons for CEO disciplinary actions, 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 preliminary notice. However, banks argue that they have internal control regulations in place, and the DLS sales profits in question amounted to about 4 billion KRW, which is only 1% of the annual asset management fee income for both Woori and Hana Banks last year, making it difficult to view it as excessive management pressure. As DLS became a national concern, there is also a view that the FSS practically over-sanctioned the CEOs out of public opinion considerations.

A financial sector official said, "This DLS sanction is a serious matter connected to the banks’ governance," adding, "Since the impact of the sanction results is significant, a more intense legal battle over the grounds for sanctions than ever before is expected."

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