"DLF Sanction Severity Likely to Be Financial Services Commission's Responsibility" ... Decision Expected on the 30th (Comprehensive)

The Authority to Interpret Sanction Laws Lies with the Financial Services Commission
Conclusion Possible at the 3rd Sanction Review on the 30th

[Asia Economy Reporter Kim Hyo-jin] It is widely expected that the final decision on the level of sanctions against banks and their executives related to the 'DLF incident' will ultimately rest with the Financial Services Commission (FSC). This is because the FSC holds the authority to interpret the regulatory basis, namely the law.

According to financial authorities on the 23rd, the Financial Supervisory Service's (FSS) Sanctions Review Committee, which is currently reviewing sanctions against Sohn Tae-seung, Chairman of Woori Financial Group (CEO of Woori Bank), Ham Young-joo, Vice Chairman of Hana Financial Group, and Woori Bank and KEB Hana Bank, includes a total of nine members: four ex officio members including FSC officials and five private members.

Among the four ex officio members, three are FSS personnel excluding the FSC representative. Although the principle of the review is for the nine members to make decisions based on deliberations grounded in facts and law, the consensus in the financial sector is that the voice of the FSC representative inevitably carries significant weight.

A financial sector insider familiar with the sanctions review said, "The FSC representative reflects the views of the FSC," adding, "Since the FSC's judgment is likely to influence other members, it is difficult to regard the FSC representative as just one out of nine members."

The authority to interpret various laws that serve as the basis for the FSS's supervisory activities lies with the FSC. The main issue in the 'DLF sanctions review' is the Financial Company Governance Act, which stipulates that "financial companies must establish internal control standards," and the Enforcement Decree, which specifies that "effective internal control standards must be established."

It is highly likely that the FSC will be the first to determine what exactly constitutes "internal control standards," the extent to which these standards are considered "effective," and whether the internal control standards of the two banks align with the intent of the law and the Enforcement Decree.

Last month, the FSS gave prior notice to Chairman Sohn and Vice Chairman Ham of the possibility of a severe disciplinary action, namely a written warning. A financial sector official said, "From the FSS's standpoint, this was essentially an expression of intent to impose the highest level of sanctions," adding, "If a sanction lower than a written warning is decided, it could be seen as reflecting the FSC's intentions more significantly."

The timing of the enforcement of sanctions also depends on the FSC's decision-making. In the case of Woori Bank, the timing is particularly sensitive due to Chairman Sohn's reappointment issue. Regardless of the possibility to raise objections through judicial procedures in the future, sanctions against executives are initially finalized once the Sanctions Review Committee passes a resolution and the FSS Governor approves it.

If severe sanctions against institutions (banks) are decided in the sanctions review, the agenda must be submitted to the FSC for resolution. The sanctions take effect when the parties receive the inspection notice from the FSS.

The FSS plans that if it decides on severe sanctions against banks, it will not separately notify the executives first but will wait for the FSC's resolution on the banks and notify both simultaneously. An FSS official explained that this approach will be taken considering usual practice and operational efficiency.

Meanwhile, on the 22nd, the FSS held the second sanctions review hearing to listen to the defense and explanations from Chairman Sohn and Woori Bank. During the first sanctions review, the defense procedures for Vice Chairman Ham and KEB Hana Bank lasted about nine hours, leaving insufficient time for Chairman Sohn and Woori Bank to present their explanations.

Chairman Sohn is reported to have refuted the grounds for sanctions presented by the FSS and appealed against the unfairness of bearing almost full responsibility as chairman or bank president. The FSS will hold the third sanctions review on the 30th, where the level of sanctions may be decided.

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