[DLF Disciplinary Action] Woori and Hana's Next Steps... Considering Legal Action

Red Light on Chairman Sohn Tae-seung's Reappointment
Chain Reaction Expected in Woori Bank President Race if Next Chairman Candidate is Re-elected
Hana Financial Also Faces Succession Disruption
Financial Firms May Resort to Litigation Cards

Son Tae-seung, Chairman of Woori Financial Group, is declaring a co-management approach toward becoming the most trusted financial group at the '2020 Woori Financial Group Management Strategy Meeting' held on the 10th.

[Asia Economy Reporter Kangwook Cho] With Sohn Tae-seung, Chairman of Woori Financial Group, and Ham Young-joo, Vice Chairman of Hana Financial Group, receiving heavy disciplinary actions related to the overseas interest rate-linked derivative-linked fund (DLF) scandal, the calculations of the two financial companies have become complicated. Chairman Sohn's path to reappointment has been blocked, and Vice Chairman Ham's challenge for the next chairman position has become uncertain. The industry is closely monitoring the timing when the disciplinary measures will take effect and is also considering legal action.

The Financial Supervisory Service (FSS) Disciplinary Committee, at its third meeting held on the 30th, decided on a heavy disciplinary action of a written warning for Sohn (who concurrently serves as Woori Bank CEO) and Ham (former CEO of KEB Hana Bank). This was to hold them accountable as CEOs for internal control failures related to the DLF scandal. The committee also recommended to the Financial Services Commission (FSC) to impose institutional sanctions on Woori Bank and Hana Bank, including partial suspension of some operations for six months and fines.

If FSS Governor Yoon Seok-heon confirms the heavy disciplinary actions following the committee's decision, Chairman Sohn and Vice Chairman Ham will face the crisis of having to step down from their executive positions at the end of their current terms. Unlike dismissal recommendations or suspensions, a written warning for executives is finalized by the FSS Governor's sole decision without requiring FSC regular meeting approval. Since Governor Yoon recently told reporters that he would respect the committee's conclusion, it is likely that the heavy disciplinary actions will be confirmed as is.

However, the timing of when the disciplinary actions take effect is crucial. The DLF scandal involves both individual and institutional sanctions, so the results for executives and institutions are notified simultaneously. While the written warning for executives is finalized by the FSS Governor's sole decision, institutional heavy sanctions or fines require approval through the Securities and Futures Commission and finally the FSC regular meeting. This means the official disciplinary effect for the two executives will be postponed until the FSC regular meeting's approval.

The most urgent is Chairman Sohn, who is up for reappointment. Sohn was selected as the sole candidate for the next chairman position on December 30 last year, and according to the original plan, he was to serve an additional three-year term after the March regular shareholders' meeting. However, if the FSC regular meeting results come out before the March shareholders' meeting, reappointment will be impossible. The Securities and Futures Commission and FSC regular meetings are held biweekly on Wednesdays. The FSC regular meeting scheduled for February 5 will include the agenda on the major shareholder suitability review for Kakao Pay's Baro Investment Securities. Therefore, the earliest possible date for the disciplinary results to be placed on the agenda could be February 19. The agenda could be delayed, and depending on the importance of the matter, several more regular meetings might be held, but there are about two months left until the shareholders' meeting. Woori Financial typically holds its shareholders' meeting at the end of March. Last year, the shareholders' meeting was held on March 27.

If Chairman Sohn fails to be reappointed, Woori Financial will have to select a new candidate for the next chairman, which could have a ripple effect on the ongoing selection process for the Woori Bank CEO. The Woori Financial Group Executive Candidate Recommendation Committee (Group ECC) had postponed the announcement of the final candidate for the next Woori Bank CEO from the 29th to the 31st. It is known that the meeting held that morning discussed the future developments following the disciplinary committee's results. Chairman Sohn serves as the chairman of the Group ECC.

Former KEB Hana Bank President Ham Young-joo is speaking at the farewell ceremony held on the 21st at the new Euljiro headquarters of Hana Financial Group in Seoul. Photo by Moon Ho-nam munonam@

The succession plan at Hana Financial has also inevitably been disrupted. The current Chairman Kim Jung-tae's term ends in March next year, but the possibility that Vice Chairman Ham, one of the leading candidates for chairman, will be unable to challenge for the position has increased significantly. Ham had already stepped down last year after attempting a third term as CEO and clashing with the FSS.

Because of this, the industry expects that financial companies are likely to consider filing injunctions to suspend the enforcement of the FSS disciplinary measures as a legal strategy. According to FSS regulations, executives can file objections to disciplinary results but cannot suspend enforcement. The industry also believes that if the matter proceeds to legal disputes, financial companies have a considerable chance of winning. There is a view that the legal basis for disciplining management in the DLF scandal is weak. The amendment to the Financial Company Governance Act, which would provide grounds to discipline CEOs for internal control failures, is currently pending in the National Assembly. However, there is also speculation that legally challenging FSS sanctions could be a burden for financial companies.

A financial industry official said, "There is growing concern about potential management vacuum situations, so financial companies are reviewing various plans, including the possibility of winning lawsuits," adding, "However, financial companies supervised by the FSS face significant burdens in confronting the FSS head-on in legal battles."

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