'Rhyme 100% Compensation'... Will Sellers Accept It?

[Asia Economy Reporter Koh Hyung-kwang] As the deadline for responding to whether to accept the Financial Supervisory Service's Dispute Mediation Committee's recommendation for 100% compensation of the Lime Trade Finance Fund approaches in one week, the dilemma of the sales companies is deepening. Despite the atmosphere of opposition, claiming that the recommendation exceeds the scope of the sales companies' responsibility, the burden lies in the fact that if they do not accept it, they will face customer attrition and confrontation with financial authorities.

According to the financial investment industry on the 20th, Hana Bank and Woori Bank plan to hold board meetings on the 21st and the 24th, respectively, to discuss the Dispute Mediation Committee's 100% compensation recommendation and decide whether to accept it. Shinhan Financial Investment is also coordinating its schedule to hold a board meeting.

The Financial Supervisory Service's Dispute Mediation Committee held a meeting on the 30th of last month and decided to cancel contracts made in error for the Lime Trade Finance Fund sold after November 2018, recommending 100% compensation of the principal investment to investors. This decision was based on the judgment that the fund's insolvency, which is already beyond recovery, was concealed during sales.

On the 7th, the Dispute Mediation Committee notified sales companies such as Woori Bank, Hana Bank, and Shinhan Financial Investment of this recommendation, and the sales companies must decide whether to accept it by the 27th. The sales volume of the Lime Trade Finance Fund is the largest at Woori Bank with 65 billion KRW, followed by Shinhan Financial Investment with 42.5 billion KRW, Hana Bank with 36.4 billion KRW, and Mirae Asset Daewoo with 9.1 billion KRW, totaling 161.1 billion KRW.

There is a strong sentiment among sales companies that it is difficult to accept the recommendation as is. While acknowledging the failure to properly verify the fund before selling, they argue that since the asset manager concealed the insolvency, the sales companies are also victims to some extent, and it is unfair to bear the burden meant for the asset manager. So far, unless fraud was involved, there has been no precedent of sales companies returning the full principal investment.

Another issue is that if compensation beyond the sales companies' responsibility is made, the management or board members of the sales companies could be exposed to breach of trust issues. Previously, the Financial Supervisory Service's Dispute Mediation Committee recommended compensation for KIKO, but most financial companies did not accept it due to concerns over breach of trust. It is also burdensome to confront the financial authorities. Especially, it is not easy to ignore the compensation recommendation from the Financial Supervisory Service, which prioritizes consumer protection. Since the Financial Supervisory Service is conducting on-site inspections for incomplete sales targeting private equity fund sales companies, it is not beneficial to fall out of favor.

However, the Dispute Mediation Committee's decision is a recommendation and has no legal binding force. If the sales companies do not accept it, compensation mediation will not be carried out, and disputes will be resolved through litigation later. A sales company official said, "The board will thoroughly review the Dispute Mediation Committee's recommendation and then decide whether to accept it."

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