Final Disciplinary Hearing on DLF, Fate of Woori and Hana Banks

Executive 'Disciplinary Warning' Status
Focus on Severity of Institutional Sanctions

[Asia Economy Reporter Jo Gang-wook] The third meeting of the Financial Supervisory Service’s (FSS) Disciplinary Committee regarding the overseas interest rate-linked derivative-linked fund (DLF) scandal, which caused massive principal losses, will be held on the 30th. It is highly likely that the disciplinary measures against Woori Bank and Hana Bank, which sold the DLFs, as well as Sohn Tae-seung, Chairman of Woori Financial Group and CEO of Woori Bank, and Ham Young-joo, Vice Chairman of Hana Financial Group (who was CEO of Hana Bank at the time of DLF sales), will be decided at this disciplinary meeting.

The FSS will hold the third disciplinary meeting from 2 p.m. on the day to continue discussions on the corrective measures following the sector inspection results of Woori Bank and Hana Bank. At the first disciplinary meeting held on the 16th, KEB Hana Bank presented its explanation, and at the re-examination on the 22nd, Woori Bank provided its explanation. Accordingly, the financial sector expects that the third disciplinary meeting will mainly focus on deliberations among committee members regarding the level of disciplinary action. In fact, the FSS is reportedly aiming to finalize the disciplinary level at this third meeting if possible.

Due to expectations that this will be the final disciplinary meeting, it has been confirmed that Chairman Sohn and Vice Chairman Ham will attend again. Vice Chairman Ham appeared at the first disciplinary meeting, and Chairman Sohn attended both the first and second meetings. Although management attendance is not mandatory since explanations have been completed, considering the seriousness of the matter, it is deemed appropriate for them to appear in person for additional explanations or other reasons.

The core issue in this disciplinary meeting is whether management can be disciplined for internal control failures. The FSS investigation department holds the position that the incomplete sales of DLFs were due to internal control failures and that management should be disciplined accordingly. However, the banks argue that disciplining management for internal control failures lacks a solid legal basis. The Financial Services Commission (FSC) announced last year that it would establish grounds for holding top executives accountable to prevent recurrence of consumer damage like the DLF incident, but the related amendment to the "Financial Company Governance Act" is currently pending in the National Assembly.

Prior to the first disciplinary meeting, the FSS pre-notified the two banks, Chairman Sohn, and Vice Chairman Ham of a severe disciplinary action called a "written warning." If an executive receives a severe disciplinary action, not only is reappointment impossible, but employment in the financial sector is restricted for 3 to 5 years. Attention is focused on whether the existing severe disciplinary actions against the two executives will be maintained or mitigated to lighter disciplinary measures through this disciplinary meeting.

In particular, Chairman Sohn’s reappointment at the Woori Financial Group shareholders’ meeting scheduled for March is virtually confirmed. If a severe disciplinary action against Chairman Sohn is finalized before the shareholders’ meeting, it will inevitably hinder his reappointment, making the level of disciplinary action even more significant. Vice Chairman Ham cannot challenge for the next Hana Financial Group chairman position if a severe disciplinary action is confirmed.

Additionally, the fact that this case involves both individual and institutional disciplinary actions adds another variable. In the case of severe institutional disciplinary action, approval from the FSC’s regular meeting is required. Whether the FSC will hold a regular meeting and notify the severe disciplinary action before the Woori Financial Group shareholders’ meeting could determine Chairman Sohn’s position. If the regular meeting’s results are notified after the March shareholders’ meeting, there is an interpretation that Chairman Sohn’s reappointment could be possible.

A financial authority official said, "Since both individual and institutional disciplinary actions are involved, if it is a severe disciplinary action, it must go through the FSC’s regular meeting, so it may take more than a month for the final result to be notified."

Meanwhile, the Woori Financial Group Executive Candidate Recommendation Committee (Group ECC) did not finalize the selection of the next Woori Bank CEO candidate on the previous day and decided to resume the meeting on the 31st. Speculation has arisen that the Group ECC’s failure to select a final candidate on the 30th was to observe the results of the disciplinary meeting scheduled for the same day. If the disciplinary meeting maintains the severe disciplinary action against Chairman Sohn, the Woori Financial Group board of directors will have to reselect not only the bank CEO candidate but also the holding company chairman candidate.

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