'Reappointment Push' Woori Financial vs 'Additional Sanctions' Financial Supervisory Service... Round 2 Preview (Comprehensive)

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[Asia Economy Reporter Kwon Haeyoung] The Financial Supervisory Service (FSS) has put Woori Bank on the disciplinary review committee following the unauthorized password change incident, after the overseas interest rate-linked derivative-linked fund (DLF) case, signaling a second round of confrontation between the two sides. Sohn Tae-seung, Chairman of Woori Financial Group (also serving as Woori Bank CEO), is actively considering filing an administrative lawsuit against the FSS and plans to push forward with the appointment of the Woori Bank CEO. The FSS has immediately announced additional sanctions. Since Woori Financial Group converted to a holding company early last year, it is expected to face a difficult path, as it urgently needs support from financial authorities such as internal rating system application and approval of licenses.

◆Woori Bank loses chance to ease CEO disciplinary action, focuses on reducing fines=According to the financial sector on the 10th, Woori Bank plans to focus on lowering the fines related to the DLF case at the Securities and Futures Commission on the 12th and the Financial Services Commission subcommittee on the 14th. The FSS imposed a six-month partial suspension of business and fines of 23 billion KRW and 26 billion KRW on Woori Bank and Hana Bank, respectively. While sanctions against Chairman Sohn personally are decided solely by the FSS chief, institutional sanctions must be confirmed through the regular meetings of the Financial Services Commission. Woori Bank is expected to actively explain its position to the Financial Services Commission to reduce fines and focus on shaping public opinion that the FSS sanctions are excessive.

Originally, Woori Bank could have lowered the level of sanctions against Chairman Sohn by one step at the FSS disciplinary hearing but missed the opportunity. Hana Bank’s organizational structure is 'Deputy CEO → CEO,' but Woori Bank’s structure is 'Deputy CEO → Division Head → CEO.' The FSS regarded the Deputy CEO as the actor, the Division Head as the first-level manager, and the CEO as the second-level manager. At the disciplinary hearing, the sanction level against Chairman Sohn, the second-level manager, was about to be lowered by one step. However, due to an unexpected remark by a Woori Bank executive, the Division Head was reclassified as the actor and Chairman Sohn as the first-level manager, resulting in the confirmation of a severe sanction against Chairman Sohn. This is considered a mistake even within Woori Bank.

Failing the last-minute reversal, Chairman Sohn is pushing ahead with his reappointment and, as previously announced, will hold the Woori Financial Group Executive Candidate Recommendation Committee on the 11th to appoint the next Woori Bank CEO. The CEO candidates are Kwon Kwang-seok, CEO of Saemaeul Geumgo Central Credit Union, Kim Jeong-gi, Executive Deputy CEO of Woori Bank’s Sales Support Division and HR Group, and Lee Dong-yeon, CEO of Woori FIS. Furthermore, if the Financial Services Commission finalizes sanctions in early March, Woori Bank is expected to file for a provisional injunction to suspend the effect of the sanctions.

◆FSS will not tolerate nullification of sanctions=The FSS also maintains a firm stance. If Chairman Sohn files for a provisional injunction to suspend the sanctions and initiates an administrative lawsuit to confirm his reappointment, it would be the first case that effectively nullifies the FSS’s sanctions. Previously, Hwang Young-ki, Chairman of KB Financial Group, was suspended from duty in September 2009 due to derivative product investment losses while serving as KB Bank CEO and filed an administrative lawsuit, but he had already stepped down as KB Financial Group Chairman. From the FSS’s perspective, it cannot simply stand by and watch attempts to nullify supervisory sanctions. Moreover, with Hana Financial Group, Shinhan Financial Group, and now Woori Financial Group confronting the FSS over CEO governance issues, it has become increasingly difficult for the FSS to back down.

The FSS’s decision to bring up the disciplinary review for Woori Bank’s unauthorized password change case after a year is also seen as related to this situation. There is a high possibility of aggravated punishment under the 'offense of defiance.' Initially, there was a temperature difference between the Inspection Bureau and the Sanctions Bureau regarding the DLF incident, but the FSS confirmed a severe sanction against the CEO. The first assessment is that the unauthorized password change incident is not a case for severe CEO sanctions, but the repercussions are uncertain. Additionally, there remains the possibility of further sanctions against Woori Bank related to the Lime Asset Management incomplete sales issue.

◆Woori Financial Group faces thorny path... Financial authorities’ licensing barriers=With Woori Financial Group announcing its intention to proceed with an administrative lawsuit, it is expected to face a thorny path ahead. Although it has declared a strong stance externally, internally it is experiencing setbacks in personnel and organizational restructuring. Originally, Woori Financial Group planned to decide the next Woori Bank CEO and carry out organizational restructuring for the financial holding company and bank on the 30th of last month, but the schedule was delayed. Due to the confirmation of severe sanctions, the CEO appointment was postponed to the 11th, and the organizational restructuring was canceled. Some outside directors are also feeling burdened by the administrative lawsuit.

It is also difficult to expect support from financial authorities for licensing in the near term. Since Woori Financial Group converted to a holding company last year, it requires active cooperation from the FSS not only for the application of the internal rating system but also for future mergers and acquisitions (M&A) and subsidiary incorporations. Last year, the FSS delayed approval of Woori Financial Group’s incorporation of International Asset Trust as a subsidiary due to the DLF incident and other issues, only granting approval belatedly at the end of the year.

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