Yoon Seok-heon, Financial Supervisory Service Chief, Secures 'KIKO Compensation' After 12 Years (Comprehensive)

Woori Bank Board Approval, Hana Bank Board Expected to Pass... Shinhan Bank Likely to Approve KIKO Compensation at April 4 Board Meeting

[Asia Economy Reporter Kwon Haeyoung] Twelve years after the 'KIKO (Knock-In Knock-Out) incident,' which caused numerous small and medium-sized enterprises (SMEs) to go bankrupt due to a sharp rise in exchange rates during the 2008 global financial crisis, a path to compensate the affected companies has opened. Woori Bank and KEB Hana Bank, which sold KIKO at the time, have decided to compensate the KIKO-affected companies in response to the Financial Supervisory Service's (FSS) recommendation. This is seen as FSS Governor Yoon Seokheon, who has insisted since his academic days that "KIKO is a fraud" and demanded a reinvestigation of KIKO, once again enforcing a strong commitment to "consumer protection" within the financial sector.

According to the financial sector on the 3rd, Woori Bank held a board meeting last week and resolved to accept the FSS Dispute Mediation Committee's recommendation for KIKO compensation decided in December last year.

The FSS recommended six banks?Shinhan, Woori, KDB Industrial, KEB Hana, Daegu, and Korea Citibank?to compensate four KIKO-affected companies with a total of 25.5 billion KRW (15-41% of the damage). Woori Bank must compensate 4.2 billion KRW to two affected companies and is the first bank to promptly accept the compensation plan.

KEB Hana Bank also plans to hold a board meeting this week to accept the FSS's KIKO compensation plan. The bank's management and board had already decided on KIKO compensation. At the board meeting held on the 8th of last month, they agreed to participate in a bank consultative body for voluntary adjustment of KIKO. Participation in voluntary adjustment for 147 KIKO-affected companies is conditional on accepting dispute mediation, so it can be seen that the board effectively approved KIKO compensation in early last month.

Shinhan Bank plans to decide whether to accept KIKO compensation at the board meeting on the 4th of this month. Although the 10-year statute of limitations for damage claims under civil law has passed and there is no legal obligation for compensation, and some outside directors oppose it due to concerns about breach of trust, it is reported that the KIKO compensation plan is likely to pass the board. Shinhan Bank's KIKO compensation amount totals 55 billion KRW, combining 15 billion KRW from this dispute mediation and 40 billion KRW from future voluntary adjustments, the largest among the banks.

Daegu Bank is also expected to follow the decisions of other commercial banks, making acceptance of the compensation plan highly likely. Citibank must follow the decision of its U.S. headquarters board, and KDB Industrial Bank has not yet decided on compensation. The deadline for decisions is the 7th. If the six banks accept dispute mediation, voluntary adjustments for 147 companies will follow. The compensation amount from voluntary adjustments is estimated to be in the 200 billion KRW range.

With some banks agreeing to accept the FSS's KIKO compensation recommendation, Governor Yoon has once again enforced the consumer protection policy he has consistently emphasized since his inauguration. The KIKO compensation is a result driven solely by Governor Yoon's determination. During his tenure as Chairman of the Financial Administration Innovation Committee in 2017, he requested a reinvestigation of KIKO from the Financial Services Commission, and immediately after his appointment as FSS Governor in May 2018, he ordered a reinvestigation of the KIKO issue from scratch.

Governor Yoon has often pointed out, "Banks hedged risks by selling the risky product KIKO but did not recommend hedging to export companies," adding, "The problem is that banks hedged the risk while knowing the risks, but export companies did not." Regarding the reemergence of KIKO five years after the 2013 Supreme Court ruling, he emphasized, "I agree with the criticism that the supervisory authorities have been passive so far. It is true that there were concerns about burdening the organization (supervisory authorities) with a KIKO reinvestigation. Although late, it is meaningful that both the supervisory authorities and banks now seek to correct their mistakes."

There are also voices of concern. Some worry about the uncertainty of supervisory policies, fearing that issues already settled could be reopened when the head of the supervisory authority changes. It is also suggested that banks are reluctantly compensating, pressured by public criticism following large losses from derivative-linked funds (DLF) and the Lime Asset Management fund rolling scandal, rather than genuinely agreeing with the supervisory authority's consumer protection stance.

However, it is difficult for banks to avoid criticism for neglecting consumer protection, given that the KIKO incident led many SMEs to bankruptcy and that banks, who had superior information, shifted risks only to SMEs. While some companies subscribed to KIKO as if investing in speculative products, there is no doubt that the incident shook trust in banks. According to the FSS announcement in 2010, 738 companies that contracted with banks for KIKO suffered losses of 3.2 trillion KRW. The KIKO Joint Countermeasures Committee's investigation found that among 919 KIKO contract companies, 235 out of 417 reachable companies went bankrupt.

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