First Ever 100% Compensation, Financial Sector Expresses Concerns of "Lining Up Like Lime?" (Comprehensive)

100% Compensation Adjustment Established, Heightened Attention on Impact to Other Dispute Mediation Cases

[Asia Economy Reporter Kim Hyo-jin] Lime Asset Management's trade finance fund (Pluto TF-1) sellers have agreed to compensate '100% of the invested principal' for the first time in the history of financial investment product dispute mediation, drawing attention to the impact this may have on future dispute mediations for other private equity funds. The financial sector is concerned that this case may set a precedent that imposes de facto 'unlimited liability' on sellers while excluding investor responsibility.

According to the financial sector on the 28th, dispute mediations by the Financial Supervisory Service (FSS) regarding the sale of defective private equity funds such as other Lime funds, Optimus funds, German Heritage derivative-linked securities (DLS), Italian healthcare funds, Areumdri Asset Management funds, Discovery funds, Pop Funding funds, and overseas interest rate-linked derivative-linked funds (DLF) are expected to follow one after another.

The FSS has estimated that the suspension of redemption for 13 private equity funds sold by commercial banks amounts to about 1.3 trillion KRW. Depending on the results of a comprehensive inspection of 10,000 private equity funds to be conducted extensively by financial authorities centered on the FSS, the scale could increase further. So far, Woori Bank, Shinhan Bank, Hana Bank, and IBK Industrial Bank are involved in private equity fund redemption suspension issues totaling about 1.34 trillion KRW.

What the financial sector is particularly focusing on is the recently noticeably strengthened government and financial authorities' financial consumer protection stance, along with the FSS's efforts to significantly enhance the effectiveness of dispute mediation. The FSS's dispute mediation is a system designed to help parties in dispute find a compromise to resolve the issue at an appropriate level without escalating to litigation.

The dispute mediation proposal must be accepted by both parties to be established. The FSS is pushing to introduce 'unilateral binding force' for cases under 20 million KRW, where if the complainant, i.e., the consumer, expresses acceptance of the mediation proposal, the financial company must accept it unconditionally, changing this principle.

A commercial bank official said, "Although large-scale cases like private equity funds may not be subject to this, the overall mediation stance could be redefined, so it cannot be taken lightly," adding, "The position that 'it must benefit the consumer first' could strongly influence the overall approach."

Amid Growing Calls for Financial Companies' Responsibility, Voices Criticizing 'Supervisory Failure' Are Also Diminishing

There are also critical voices that the responsibility of the FSS, which should manage the market to prevent disputes from occurring in the first place, may increasingly be suppressed.

A financial sector official who participated in the FSS's decision-making as an external advisor pointed out, "From a principled perspective, incidents like Lime could be seen as problems with the FSS's supervisory services and, more broadly, failures in the overall management by financial authorities," adding, "The recent atmosphere seems to make it somewhat difficult to raise such issues."

Regarding private equity funds, the financial sector has consistently pointed out that since the financial authorities significantly lowered market entry barriers in 2015, the number of asset managers without proper qualifications has greatly increased, and as the market for professional investors became accessible to the general public, damages have grown.

Lime Trade Finance Fund Sellers Unanimously Accept Mediation Proposal on the 27th

Meanwhile, four Lime trade finance fund sellers?Woori Bank, Hana Bank, Shinhan Financial Investment, and Mirae Asset Daewoo?held board meetings simultaneously the day before and accepted the FSS Dispute Mediation Committee's proposal passed in June to compensate the full invested principal.

Although the sellers maintain that there is room for legal debate regarding the mediation proposal, they decided to accept it on the grounds of financial consumer protection principles and management stability through uncertainty resolution. The sales amounts of the Lime trade finance fund are 65 billion KRW for Woori Bank, 36.4 billion KRW for Hana Bank, 42.5 billion KRW for Shinhan Financial Investment, and 9.1 billion KRW for Mirae Asset Daewoo.

The FSS Dispute Mediation Committee judged that contracts for funds sold after late November 2018, when Lime Management and others became aware of the trade finance fund's insolvency, could be canceled due to fraud or mistake.

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