Sanction Review Begins in 'DLF Incident'... Dispute Over Disciplinary Severity (Comprehensive)

Son Tae-seung, Chairman of Woori Financial Group, and Ham Young-joo, Vice Chairman of Hana Financial Group, Provide Direct Explanations... Focus on 'Unclear Grounds for Sanctions'

On the 16th, when the Financial Supervisory Service's Disciplinary Committee regarding the overseas interest rate-linked derivative-linked fund (DLF) incident, which caused massive principal losses, was held, members of the DLF Victims Countermeasure Committee and the Financial Justice Solidarity held a press conference in front of the Financial Supervisory Service in Yeouido, Seoul, demanding severe disciplinary actions against Woori Bank and Hana Bank. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Jo Kang-wook] The Financial Supervisory Service (FSS) Disciplinary Committee, which determines the level of sanctions against banks and their management in connection with the overseas interest rate-linked derivative-linked fund (DLF) incident that caused massive principal losses, was held on the 16th. In particular, fierce debates are underway over the level of sanctions against executives, including Son Tae-seung, Chairman of Woori Financial Group and CEO of Woori Bank, and Ham Young-joo, Vice Chairman of Hana Financial Group.

The disciplinary committee began at 10 a.m. at the FSS headquarters on the 11th floor in Yeouido, Seoul. The FSS disciplinary committee, which is usually held twice every two weeks each month and typically starts at 2 p.m., was unusually moved up to 10 a.m. this time. The committee was conducted as a grand hearing where both the FSS investigation department and the subjects of sanctions presented their opinions together.

Hana Bank was the first to be reviewed. Vice Chairman Ham appeared in person to present his defense, and it is reported that he used the basement floor to attend, seemingly mindful of the DLF Victims’ Countermeasure Committee and the media holding a press conference in front of the FSS that day. Around 4 p.m., the disciplinary hearing for Woori Bank is scheduled to take place, with Chairman Son also attending. Given that the sanction results could inevitably impact Son’s reappointment as Woori Financial Group chairman and Ham’s bid for the next Hana Financial Group chairman, it appears they decided to attend in person to provide a clear explanation.

The biggest issue in the disciplinary hearing is the level of sanctions against the CEOs. Sanctions against financial company executives and employees are divided into five levels: light disciplinary actions such as caution and warning, and severe disciplinary actions including reprimand, suspension (leave of absence), and dismissal recommendation. Executives who receive severe disciplinary actions can complete their remaining term but cannot serve as executives of financial companies for the following three years. Because of this, although Son succeeded in his reappointment last year, if a severe disciplinary action is confirmed before the March shareholders’ meeting, reappointment may become impossible. Ham, who was considered the top successor to Kim Jung-tae, Chairman of Hana Financial Group, would be unable to challenge for the next chairman position if he receives a severe sanction. They may file an objection or seek a provisional injunction from the court to suspend the effect of the sanctions, but this could be seen as confronting the FSS, which might be burdensome.

The FSS has already pre-notified the executives, Son and Ham, of the severe sanction of 'reprimand.' The core grounds for sanctions are 'inadequate internal controls' and 'excessive management pressure.' However, the problem lies in the possibility that the legal basis for the sanctions may be insufficient. The Financial Services Commission announced last year that it would establish grounds to hold top executives responsible to prevent recurrence of consumer damage like the DLF incident, but the related amendment to the 'Financial Company Governance Act,' which would serve as the legal basis, is currently pending in the Political Affairs Committee.

The banks are expected to mount an all-out effort to reduce the level of sanctions against management by arguing that the grounds for sanctions are unclear. They claim that while the 'Financial Company Governance Act' stipulates that financial companies must establish internal control standards and the enforcement decree states that 'effective internal control standards must be established,' there is no clause that allows punishment of executives for failing to meet these standards. On the other hand, the FSS considers the effectiveness of internal control standards to be crucial. For this reason, the DLF dispute mediation included, for the first time, the 'bank’s internal control negligence' in the compensation ratio. As the two sides present sharply opposing arguments, if no disciplinary decision is made on this day, another disciplinary hearing will be held on the 30th.

An anonymous official from the financial authorities said, "We do not expect the disciplinary process to end after one or two hearings," adding, "This case also involves sanctions against financial institutions, so the final approval of the Financial Services Commission is required, and even after the sanction level is decided, it may take considerable time before it takes effect."

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