Private Equity Fund Scandal... Inevitable Mass Summoning of Financial Company CEOs at National Audit (Comprehensive)

Financial Sector CEOs Targeted... Witness Request Process to Begin Soon

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] As the private equity fund scandal has become one of the core issues in the financial sector, it is expected that CEOs of financial institutions will be summoned one after another to the National Assembly audit scheduled for October, the first audit of the 21st National Assembly. Due to the impact of the novel coronavirus disease (COVID-19), excuses such as overseas business trips and vacations have disappeared, making attendance unavoidable when witnesses are requested, putting them in an awkward situation.

According to the National Assembly and financial sector on the 19th, members of the National Assembly’s Political Affairs Committee have not yet finalized who to summon to the audit regarding the private equity fund scandal. With about two months left until the audit, they plan to finalize the issue and soon proceed with selecting witnesses. Once the audit schedule is confirmed, the Political Affairs Committee secretariat will begin compiling the witness list, so it is expected that the outline of who will appear at the audit will become clear at that time.

CEOs of Banks and Financial Companies Related to Insolvent Private Equity Funds Likely to Be on Witness Request List

Political and financial circles expect that many CEOs of financial institutions will be named as witnesses in this audit. As the private equity fund scandal has emerged as a major issue this year, CEOs of banks and securities firms responsible for poor sales, and even financial holding company chairpersons, may inevitably be requested to appear as witnesses.

A financial sector insider familiar with National Assembly affairs said, "When the Political Affairs Committee received the first business report from financial authorities including the Financial Services Commission and the Financial Supervisory Service at the end of last month, the focus was on the private equity fund scandal being due to poor supervision by financial authorities and incomplete sales by financial sales companies," adding, "It was possible to feel that lawmakers from both ruling and opposition parties were firmly determined regarding the private equity fund scandal." He added, "In the past, when financial accidents occurred, heads of involved companies were included in the witness request list. This year, the names of major financial company representatives involved in the private equity fund scandal will likely appear on the witness request list."

With concerns about the resurgence of COVID-19 growing ahead of the audit, financial institution CEOs cannot use excuses such as overseas business trips, attendance at international forums, or vacations to avoid witness attendance requests. Some speculate that financial companies may actively engage in preemptive efforts to clarify that the responsibility for the private equity fund scandal does not rest solely on the poor sales by sales companies.

However, even if CEOs are included in the witness request list, the fact that interest in the private equity fund scandal is somewhat waning provides a 'breathing space' for financial companies. In fact, within the opposition party offices preparing for the audit, it is reported that they face difficulties as they must focus on 'hot issues' that are highly controversial, and most of the additional information that could come out regarding financial companies related to the private equity fund scandal has been exhausted.

Meanwhile, according to the Financial Supervisory Service, the five major domestic commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Banks?have sold private equity funds worth more than 70 trillion won over the past five years. Private equity fund sales commission income has also increased annually. It recorded 35.6 billion won in 2015, 48.9 billion won in 2016, 67.4 billion won in 2017, 83.6 billion won in 2018, and 96.0 billion won in 2019. Over five years, Hana Bank received the highest sales commission (96.6 billion won), followed by Woori Bank (68.2 billion won), Shinhan Bank (64.0 billion won), Nonghyup Bank (64.3 billion won), and Kookmin Bank (38.4 billion won).

Since last year, as the private equity fund scandal has erupted in various places, the banking sector has significantly reduced the scale of private equity fund sales this year. In fact, in the first quarter of this year, the five major banks’ private equity fund sales amounted to 2.1758 trillion won, and sales commissions shrank to 1.8 billion won.

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