FSS Launches This Week's Voluntary Talks on KIKO Compensation

[Asia Economy Reporter Kim Hyo-jin] The Financial Supervisory Service (FSS) will initiate a voluntary adjustment process with sales banks this week regarding compensation for companies affected by the foreign exchange derivative product KIKO.

According to financial authorities and the financial sector on the 10th, the FSS plans to hold a meeting on the 12th with representatives from five banks?KB Kookmin, NH Nonghyup, IBK Industrial Bank, SC First Bank, and HSBC?to discuss participation in a 'bank consultative body' that will handle the voluntary adjustment issue related to the KIKO incident.

These banks sold the product to some of the 145 companies affected by KIKO. An FSS official stated, "We will first explain the dispute resolution status surrounding the KIKO incident."

In December last year, the FSS proposed a dispute resolution plan requiring six banks?Shinhan, Hana, Woori, DGB Daegu, Korea Citi, and KDB Industrial Bank?that sold KIKO to four companies to compensate 15-41% of the losses, recognizing their responsibility for incomplete sales.

However, except for Woori Bank, the other five banks rejected the proposal, arguing that "compensation now would constitute a breach of fiduciary duty harming shareholder interests since the 10-year statute of limitations for claims under civil law has already passed," effectively causing the dispute resolution to collapse.

Separately, the FSS aims to devise a voluntary compensation or reimbursement plan for the affected companies. Shinhan, Hana, and DGB Daegu Banks have already expressed their intention to participate once the bank consultative body is operational and will not attend this meeting.

Even if the bank consultative body is activated, banks generally view the likelihood of promptly reaching a concrete compensation or reimbursement plan as low. A bank official said, "If banks had accepted the dispute resolution plan previously proposed by the FSS, it could have served as a guideline to accelerate voluntary adjustment, but since the opposite occurred, the basis for voluntary adjustment has also weakened."

Another bank official commented, "Regardless of the amount, many banks have concluded through a lengthy process that it is difficult to alleviate concerns about breach of fiduciary duty. I am skeptical about how revolutionary logic can be created through the voluntary adjustment procedure," adding, "While I understand the intention to 'leave it to the banks' autonomy,' the authorities need to proactively approach the issue from a political or somewhat different perspective to resolve the problem."

KIKO is a derivative product structured so that if the exchange rate fluctuates within a certain range, foreign currency can be sold at an agreed rate, but if it goes beyond that range, significant losses occur. Export-oriented small and medium-sized enterprises subscribed to it for hedging exchange rate risks but suffered damages such as a series of bankruptcies when exchange rates fluctuated sharply during the 2008 financial crisis.

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