'Head-on Collision' Woori Financial vs. Financial Supervisory Service Round 2 Preview... Woori Financial Faces Rough Road Ahead

Appointment of Woori Bank President on the 11th... Administrative lawsuit planned if sanctions confirmed next month
FSS unlikely to overlook first attempt to effectively nullify sanctions
One year after holding company transition, Woori Financial faces 'thorny path' for regulatory approval support

[Image source=Yonhap News]

[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 President), is actively considering filing an administrative lawsuit against the FSS and plans to push forward with appointing the Woori Bank President. The FSS has announced immediate additional sanctions. Having converted into a holding company early last year, Woori Financial is expected to face a difficult path ahead, as it urgently needs support from financial authorities for internal rating system application and licensing approvals.

According to financial circles on the 10th, Woori Bank plans to focus on reducing 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 Commissioner, institutional sanctions must be finalized through the regular meeting of the Financial Services Commission. Woori Bank is expected to actively appeal to the Financial Services Commission to reduce the fines and focus on shaping public opinion that the FSS’s disciplinary actions are excessive.

Initially, Woori Bank could have lowered the level of sanctions against Chairman Sohn at the FSS disciplinary hearing. Hana Bank’s organizational structure is 'Vice President - President,' but Woori Bank’s structure is 'Vice President - Division Head - President.' The FSS regarded the Vice President as the actor, the Division Head as the first-level manager, and the President as the second-level manager. At the disciplinary hearing, it was highly likely that the sanction level against Chairman Sohn, the second-level manager, would 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 at the last minute, leading to the confirmation of a severe sanction against Chairman Sohn.

Failing to overturn the decision at the last moment, Chairman Sohn will hold the Woori Financial Executive Candidate Recommendation Committee on the 11th to appoint the next Woori Bank President. If the Financial Services Commission finalizes the sanctions in early March, it is expected that an injunction to suspend the effect of the sanctions will be filed.

The FSS also maintains a firm stance. If Chairman Sohn files an injunction to suspend the sanctions and initiates an administrative lawsuit to confirm his reappointment, it would be the first case to effectively nullify the FSS’s sanctions. From the FSS’s perspective, it cannot simply stand by and watch attempts to undermine the authority of the supervisory body’s sanctions. Following Hana Financial and Shinhan Financial, Woori Financial is also confronting issues related to CEO governance, making it difficult for the FSS to back down any further.

Analysts say that the FSS’s decision to bring up the unauthorized password change disciplinary review card after a year is not unrelated to this situation. There is a high possibility of imposing aggravated penalties under the charge of 'contempt.' Initially, there was a temperature difference between the Inspection Bureau and the Sanctions Bureau regarding the DLF incident, but the FSS confirmed severe sanctions 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. There is also a possibility of additional sanctions against Woori Bank due to the Lime Asset Management incomplete sales issue.

As the standoff continues, Woori Financial is expected to face a thorny path. Although it has declared a strong offensive stance externally, internally it is already in a state of operational paralysis. The appointment of the bank president has been postponed due to the confirmation of severe sanctions, and organizational restructuring has been reset to square one. Additionally, some outside directors feel burdened by the prospect of an administrative lawsuit.

It is also anticipated that support from financial authorities for licensing approvals will be difficult to expect for the time being. Having converted into a holding company last year, Woori Financial 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’s incorporation of the international asset trust subsidiary due to the DLF incident and only approved it belatedly at the end of the year.

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