Sales Companies Contemplating Full Compensation Plan for Lime Fund... A Second KIKO? (Comprehensive)

Concerns Over Breach of Fiduciary Duty by Banks and Other Sellers' Boards
Financial Supervisory Service's Full Compensation Recommendation Likely to Be Deferred

[Asia Economy Reporter Kim Min-young] As Hana Bank's board of directors postponed the decision on full compensation for the Lime Trade Finance Fund, there are expectations that other financial companies, including Woori Bank, will take similar steps. It is known that financial company boards feel considerable burden regarding full compensation, citing issues such as breach of trust.

According to financial circles on the 22nd, Woori Bank will discuss whether to accept the Financial Supervisory Service's (FSS) recommendation at its board meeting on the 24th. The deadline for response set by the FSS is the 27th. It is also reported that Woori Bank's board is leaning towards deferring the decision. A Woori Bank official said, "It is difficult to specifically gauge the direction of the discussion," but added, "We will likely deliberate in a similar context to Hana Bank."

Hana Bank's board requested the FSS to extend the deadline for deciding whether to accept the recommendation until the next board meeting, stating that "if the (FSS) Dispute Mediation Committee's decision is accepted, the mediation will be established and will have the same effect as a judicial settlement, so it is necessary to review the acceptance more carefully."

A financial industry insider explained, "Hana Bank's judgment can serve as a kind of 'guideline,'" and added, "When multiple banks or sellers face common issues like this, discussions and decisions generally proceed along similar lines."

The insider also predicted, "If one institution has already made a judgment, others are likely to take a very conservative approach by looking for reasons why they must make a different decision 'despite that.' Since contract cancellation due to legal error can expose executives or board members to breach of trust issues, it will be difficult to fully accept the Dispute Mediation Committee's compensation proposal."

Earlier, on the 30th of last month, the FSS Dispute Mediation Committee applied Article 109 of the Civil Act, 'Contract Cancellation Due to Error,' to four dispute mediation applications related to the Lime Trade Finance Fund sold since November 2018, and decided on 100% compensation. This is the first recommendation for full principal compensation on an investment product.

The largest sales volume of the fund was by Woori Bank at 65 billion KRW. Shinhan Financial Investment sold 42.5 billion KRW, Hana Bank 36.4 billion KRW, Mirae Asset Daewoo 9.1 billion KRW, and Shinyoung Securities 8.1 billion KRW, totaling 161.1 billion KRW.

Some voices are already predicting a scenario similar to the 'KIKO' case, where sellers keep postponing decisions and eventually reject the proposal. Unless sellers make a magnanimous decision, the Lime compensation case is bound to become tangled like KIKO.

The FSS stated that it will accept requests to extend the deadline for sellers' acceptance decisions if it deems the reasons valid. However, considering the gravity of the matter, the FSS holds that banks and other sellers have the responsibility to make decisions as promptly as possible. An FSS official said, "We will not allow a situation where decisions are continuously postponed multiple times like in the KIKO case."

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