'KIKO Compensation Recommendation' Ultimately Rejected by Banks

No Enforcement Power for Dispute Mediation Committee
Shinhan, Hana, Daegu Banks Reject
Calls for Financial Supervisory Service Status Decline

[Asia Economy Reporter Jo Kang-wook] The issue of compensation for the foreign exchange derivative product KIKO, which had been dragged on for over six months, has ultimately ended in rejection by commercial banks. Although Yoon Seok-heon, the Governor of the Financial Supervisory Service (FSS), enthusiastically pushed for it after his inauguration, the lack of enforceability and the banks' board of directors' judgment that compensating for a matter already ruled on by the Supreme Court would constitute breach of trust led to this outcome.

According to the financial sector on the 8th, Shinhan, Hana, and Daegu Banks held board meetings on the 5th and made a final decision to reject the KIKO compensation recommendation. Each bank's board appears to have judged that proceeding with compensation after the Supreme Court ruling carries a high risk of breach of trust.

Thus, the KIKO compensation issue, which had continued for over six months since the FSS Dispute Mediation Committee made a mediation decision last December, has concluded with the rejection by five of the six banks, excluding Woori Bank. The mediation by the committee lacks legal enforceability, so if a bank refuses, the matter ends as is. Although the notification period for acceptance was extended five times while waiting for a response, this time the decision was made earlier than the deadline of the 8th for the KIKO compensation plan.

Previously, the Dispute Mediation Committee found that Shinhan, Woori, Industrial, Hana, Daegu, and Citibank were responsible for incomplete sales of KIKO and recommended compensation of 15-41% of the loss amount to four companies: Ilseong Highsco, Namhwa Trading, One Global Media, and Jaeyoung Solutek. These banks were accused of fraud but were ultimately cleared of charges in 2013. The statute of limitations for legal claims on KIKO damages is 10 years. However, after Governor Yoon took office, he ordered a full reinvestigation of KIKO, and after one and a half years, the mediation committee was convened and a compensation ratio was derived, but it ultimately ended with compensation being impossible. Inside the FSS, there is criticism that Governor Yoon forced a matter over 10 years old, causing this situation.

Some voices suggest that the authority of the FSS has been lost. An example is the lawsuits filed by financial companies against sanctions related to overseas interest rate-linked derivative-linked funds (DLF). In March, Sohn Tae-seung, Chairman of Woori Financial Group, filed an administrative lawsuit in protest against a heavy disciplinary action, and earlier this month, Ham Young-joo, Vice Chairman of Hana Financial Group, also filed an administrative lawsuit. Notably, Chairman Sohn pushed for reappointment through the lawsuit, and Vice Chairman Ham, considered the likely successor to Chairman Kim Jung-tae whose term expires in March next year, maintained his position while opposing the FSS's decision. This is a stark contrast to the past when CEOs of financial companies who received heavy disciplinary sanctions from the FSS would resign first and then file lawsuits to restore their honor.

A financial sector official said, "In the past, it was impossible to find cases where financial companies dared to defy the FSS's 'orders,' such as lawsuits related to DLF sanctions or rejection of KIKO compensation plans," adding, "It is true that there are talks that the authority of the FSS is not what it used to be due to unilateral decisions ignoring the realities of financial companies and frequent conflicts with higher authorities."

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