"Rhyme Sales Company CEO Suspended from Duty"... Why Is It Different from the DLF Incident?

[Asia Economy Reporter Koh Hyung-kwang] Financial authorities have notified the current and former CEOs of three securities firms that sold Lime Asset Management funds of severe disciplinary actions, including the possibility of the maximum 'suspension from duty,' in connection with the Lime Asset Management fund redemption suspension incident. Although the final disciplinary level will be decided at the Disciplinary Committee (Disciplinary Review) at the end of this month, this sanction is one level higher than the penalties applied to bank presidents during the overseas interest rate-linked derivative-linked fund (DLF) incident earlier this year.

According to the financial sector on the 11th, the Financial Supervisory Service (FSS) pre-notified disciplinary proposals on the 6th to the Lime fund selling securities firms, including Shinhan Financial Investment, KB Securities, and Daishin Securities. The disciplinary proposals reportedly include the possibility of suspension from duty for Kim Byung-chul, former CEO of Shinhan Financial Investment at the time of Lime fund sales; Park Jung-rim, current CEO of KB Securities; and Na Jae-chul, former CEO of Daishin Securities (currently Chairman of the Korea Financial Investment Association). This is because the CEOs of the selling firms failed to properly fulfill their obligation to establish effective internal control standards during the development and sales process of new products to protect stakeholders.

The disciplinary level initially notified by the FSS to them exceeds the level applied to bank presidents during the large-scale loss incident of the DLF. Sanctions against financial company executives are divided into five levels: 'recommendation for dismissal, suspension from duty, reprimand, cautionary warning, and warning,' with suspension from duty being the second strongest sanction. Executives are immediately excluded from their duties and are prohibited from re-employment in the financial sector for four years. Previously, during the DLF incident, the bank presidents received a reprimand, one level lower than this, which prohibited re-employment in the financial sector for three years.

The FSS explains that the difference in the disciplinary levels for CEOs in the two incidents reflects the distinction between 'supervisors' and 'perpetrators.' When sanctioning financial company executives, the FSS determines whether the executive failed to supervise illegal acts (supervisor) or directly committed illegal acts (perpetrator). Generally, punishment is more severe when the executive directly committed illegal acts.

In the DLF incident, the failure to establish internal control standards was done by department heads, and the bank presidents were held responsible for failing to properly supervise them. In contrast, in the Lime incident, the securities firm CEOs were the actors responsible for establishing internal control standards but failed to do so.

An FSS official stated, "Securities firms have smaller organizations compared to banks, so the CEO is expected to directly establish internal control standards," and explained, "Compared to the DLF incident, where bank presidents were sanctioned as supervisors, securities firm CEOs as perpetrators can receive stronger sanctions."

The FSS plans to hold a disciplinary committee on the 29th to make the final decision on the disciplinary proposals related to the Lime incident and the selling firms.

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