DLF Final Disciplinary Hearing Opens... Fate Day for Woori and Hana Bank's Disciplinary Levels (Comprehensive)

[Asia Economy Reporter Kangwook Cho] 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, was held on the 30th. The disciplinary level for 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 (then CEO of Hana Bank during the DLF sales), is expected to be decided at this disciplinary meeting.

The FSS held the third disciplinary meeting from 2 p.m. that day and continued discussions on the corrective measures following the sector inspection results for 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 third disciplinary meeting is expected to mainly involve deliberations among committee members on the level of disciplinary action. The FSS is reportedly aiming to finalize the disciplinary level at this third meeting if possible.

With expectations that this would be the final disciplinary meeting, Chairman Sohn and Vice Chairman Ham appeared again before the committee. Chairman Sohn arrived at the FSS around 3 p.m., and Vice Chairman Ham arrived around 12:10 p.m., both heading to the 11th floor where the meeting was held. Previously, Vice Chairman Ham attended the first disciplinary meeting, and Chairman Sohn attended both the first and second meetings. Since explanations have already been completed, the attendance of executives is not mandatory, but considering the gravity of the matter, it is deemed appropriate for them to appear in person for any additional explanations.

The key issue in this disciplinary meeting is whether executives 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 executives should be disciplined accordingly. However, the banks argue that there is insufficient legal basis to discipline executives for responsibilities arising from internal control failures. The Financial Services Commission (FSC) announced last year that it would establish grounds to hold top executives accountable to prevent recurrence of consumer damages like the DLF incident, but the related amendment to the 'Financial Company Governance Act' remains pending in the Political Affairs Committee.

Before the first disciplinary meeting, the FSS pre-notified the two banks and Chairman Sohn and Vice Chairman Ham of a severe disciplinary action called a 'written warning.' If an executive receives a severe disciplinary action, reappointment is prohibited, and 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 actions through this 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 disciplinary level even more significant. Vice Chairman Ham will be unable to challenge for the next Hana Financial Group chairmanship if a severe disciplinary action is confirmed.

Additionally, this case involves both individual and institutional disciplinary actions, which adds complexity. If an institutional severe disciplinary action is imposed, 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. Some interpret that if the regular meeting’s decision is notified after the March shareholders’ meeting, Chairman Sohn’s reappointment could be possible.

A financial authority official stated, "Since both individual and institutional disciplinary actions are involved, if a severe disciplinary action is imposed, it will require going through the FSC’s regular meeting, so it may take more than a month before the final result is 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 disciplinary committee’s results scheduled for that day. If the disciplinary committee maintains the severe disciplinary action against Chairman Sohn, the Woori Financial Group board will need 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.