Stronger 'Suspension from Duty' Notice than DLF... Heading Toward Litigation?

[Asia Economy Reporter Koh Hyung-kwang] Regarding the Lime Asset Management incident that caused the suspension of redemption for a fund worth around 1.6 trillion won, financial authorities have reportedly issued a prior notice of disciplinary action of 'suspension from duty' to the CEOs of the three securities firms that sold this fund. This disciplinary level is one step higher than the 'reprimand warning' given to the presidents of Woori Bank and Hana Bank during last year's overseas interest rate-linked derivative-linked securities (DLF) incident. The sellers are opposing the sanctions, citing a lack of legal grounds, making legal responses such as administrative lawsuits inevitable in the future.

According to financial authorities and the financial investment industry on the 8th, the Financial Supervisory Service (FSS) plans to hold a disciplinary review committee meeting on the 29th to make a final decision on the disciplinary measures for the sellers related to the Lime incident. Prior to this, on the 6th, the FSS sent a prior notice containing institutional sanctions and heavy disciplinary measures for executives related to the Lime incident to Shinhan Financial Investment, Daishin Securities, and KB Securities. The subjects of the sanctions are former Shinhan Financial Investment President Kim Byung-chul, KB Securities President Park Jung-rim, and former Daishin Securities President Na Jae-chul (currently Chairman of the Korea Financial Investment Association).

The core basis of the disciplinary proposal is that these sellers failed to properly fulfill their obligation to establish effective internal control standards to protect stakeholders during the development and sale of new products. In banks, since the heads of departments have the authority to establish internal control standards, the bank presidents were held responsible and given 'reprimand warnings,' but in securities firms, since the CEO has the authority, the disciplinary level is reportedly one step higher than in the DLF case.

If the FSS's sanctions are finalized, the sanctioned securities firms are also expected to strongly oppose them. The financial sector views the legal grounds for the FSS's sanctions as weak. The 'Act on the Corporate Governance of Financial Companies,' which provides the legal basis to sanction CEOs for inadequate establishment of internal control standards, is still pending in the National Assembly. Another issue is that executives who receive heavy disciplinary notices are restricted from new employment (including reappointment) in the financial sector for 3 to 5 years from the date of notification. A representative of a selling firm expressed dissatisfaction, saying, "The FSS is defining the Lime incident as a fraud case conspired by Lime Asset Management and Shinhan Financial Investment and is trying to place responsibility on all sellers."

Because of this, there is speculation that the conflict that arose earlier this year between the FSS and the banking sector over the DLF disciplinary actions will be repeated. Sohn Tae-seung, Chairman of Woori Financial Group, and Ham Young-joo, Vice Chairman of Hana Financial Group (who was president of Hana Bank during the DLF incident), filed administrative lawsuits to cancel the disciplinary actions and injunctions to suspend their effect, opposing the FSS's reprimand warnings. As the injunctions were accepted, legal battles are ongoing. A financial industry official who received the disciplinary notice this time stated, "After the disciplinary review committee's decision is finalized, we will discuss internally and respond accordingly," making it clear that they will not simply accept the FSS's disciplinary proposal.

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