[Q&A] FSC "Target by End of August, Lime Asset Management Sanctions and Establishment of Bridge Management Company in Progress"

[Asia Economy Reporter Minji Lee] Financial authorities plan to impose sanctions on Lime Asset Management and establish a bridge management company by the end of August.

On the 10th, the Financial Supervisory Service (FSS) held a press briefing on the 'Status of Lime Fund Transfer and Related Matters,' announcing that 20 Lime fund distributors have agreed to establish a bridge management company for the transfer and management of Lime funds and have signed a memorandum of understanding to prepare detailed plans.

[Image source=Yonhap News]

The FSS plans to conclude shareholder agreements and establish the corporation by the end of June, and complete the registration of the management company and fund transfer procedures by the end of August. To expedite related procedures such as capital approval and management company registration, they intend to closely consult with a task force led by the distributors for the establishment of the bridge management company.

Furthermore, regarding sanctions on Lime Asset Management, the FSS explained, "We plan to impose strict sanctions in conjunction with the fund transfer, targeting the end of August."

Below is a Q&A regarding the 'Transfer of Lime Funds and Establishment of Bridge Management Company for Post-Management' announced by the Financial Supervisory Service.

- You mentioned sanctions on Lime Asset Management in conjunction with the fund transfer. What is the timing and severity? Is license revocation possible?

Sanctions on Lime Asset Management itself require the fund transfer to the newly established bridge management company first. We aim to carry out sanctions and fund transfer concurrently by the end of August. The inspection results revealed multiple illegal acts, falling within the scope of severe disciplinary actions.

- An on-site inspection at Shinhan Bank is scheduled from the 15th. Does this mean the issues have been recognized?

The reason for deploying bank inspections now is that after completing the inspection on Lime, a certain outline regarding surrounding management companies and securities firms has emerged. Inspections will first be conducted at Woori Bank, which has a large sales volume, and Shinhan Bank, whose affiliated companies' inspections have been completed. Industrial Bank of Korea has a small amount related to Lime but will be inspected regarding the recently problematic Discovery Asset Management fund.

- Are sanctions being prepared against Shinhan Financial Investment, Daishin Securities, and KB Securities?

Inspections of Shinhan Financial Investment and Daishin Securities have been completed, and investigative reference materials have been provided to the prosecution. KB Securities completed inspection last Friday. Issues related to improper solicitation and incomplete sales were examined.

- Can securities firms with TRS contracts recover funds before general investors?

There is no priority in executing TRS contract terms before others. The sales side is considered to bear some responsibility. For overseas funds, there is no practical benefit in recovering funds earlier.

- Why was there disagreement between Shinhan Financial Group and Woori Bank over the largest shareholder position during the bridge management company establishment?

Since Shinhan Bank and Shinhan Financial Investment (23% of Shinhan Financial Group affiliates) have the largest sales share, Shinhan believed they should take the lead. However, Woori Bank, as the single largest shareholder, also argued it should take charge. Becoming an actual subsidiary would entail disclosure obligations and shareholding issues, making it difficult to decide on the largest shareholder role.

- What are your thoughts on the permanent establishment of bridge management companies?

If there is a need to manage similar types of funds, there are plans to establish bridge management companies with similar content.

- In the case of trade finance funds, the scope of asset recovery is unclear. How far can recovery go if a bridge management company is established?

- Since trade finance fund assets are overseas, there were difficulties in due diligence. Only the existence of contracts was confirmed, and valuation had limitations. Establishing a bridge management company now can be seen as creating an environment to make more active efforts regarding these issues.

- Sales commissions continue to be paid by distributors. What happens when the bridge management company is established?

Since a task force for establishment has been formed, they will decide how to handle this. Because the bridge management company will be operated centered on distributors, the FSS believes its role in this area should be somewhat limited.

- Is investor compensation and dispute mediation impossible until the fund is liquidated?

Regarding dispute mediation conditions, compensation ratios and amounts are determined after losses are confirmed and quantified. The cash realization plan is set for 2025, so the final loss amount and compensation will be determined after that.

- Can other banks cancel contracts for Lime trade finance funds worth 160 billion KRW?

Currently, a second legal consultation is underway. The first legal consultation reviewed all matters related to cancellation due to fraud, mistake, and damages. The review targets trade finance funds with complaints, excluding Shinhan Financial Investment.

- What are the financial authorities' thoughts on preemptive management, supervision, and post-management after the Lime incident?

- There was a lack of preemptive monitoring. Since the Lime incident, the Financial Services Commission has announced plans to include monitoring tools and institutional measures in improvement plans. Institutional improvements will be pursued through legislation and preparation of model regulations.

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