First Disciplinary Hearing for Lime Seller...Growing Calls for Regulatory Accountability

Three Securities Firms' CEOs Receive Severe Disciplinary Notices... "Excessive" Backlash

[Image source=Yonhap News]

[Asia Economy Reporter Park Ji-hwan] The first disciplinary committee meeting by financial authorities regarding securities firms that sold Lime Asset Management funds, which caused a massive private equity fund redemption suspension worth around 1.6 trillion KRW, will be held on the 29th. It is expected that fierce disputes will arise during the disciplinary hearing over the grounds for sanctions and the scope of responsibility between the financial authorities and the selling securities firms. Criticism is mounting that the Financial Supervisory Service (FSS) is pushing too hard for disciplinary actions against financial company CEOs, alongside debates over supervisory responsibility.

The Financial Supervisory Service will conduct the disciplinary hearings at 2 p.m. at its headquarters in Yeouido, Seoul, proceeding in the order of Shinhan Financial Investment, Daishin Securities, and KB Securities. Each institution has been pre-notified of severe disciplinary measures such as corrective orders. In particular, former and current CEOs of these securities firms have been notified of severe disciplinary actions, including 'suspension from duty,' for failing to properly establish internal control standards and neglecting management. The severity of employee sanctions ranges from caution, cautionary warning, reprimand warning, suspension from duty, to dismissal request. Those subject to sanctions include Park Jeong-rim, CEO of KB Securities during the Lime incident; Yoon Kyung-eun, former CEO of KB Securities; Kim Byung-chul, former CEO of Shinhan Financial Investment; and Na Jae-cheol, former CEO of Daishin Securities (currently Chairman of the Korea Financial Investment Association).

The core issue in this disciplinary hearing is whether management can be sanctioned for responsibility over internal control failures. The FSS cited Article 24 of the Financial Company Governance Act (Internal Control Standards) and Article 19 of its Enforcement Decree, concerning 'failure to establish internal control standards,' as grounds for severe disciplinary action against CEOs. These regulations stipulate that financial companies must establish standards and procedures (internal control standards) that employees must follow when performing their duties to comply with laws, conduct sound management, and protect shareholders and stakeholders. The logic is that management can be held accountable for failing to implement effective internal controls.

The securities industry is resisting, calling the sanctions excessive and lacking legal basis. They argue that the regulations are declarative and broad, and punishing CEOs who are not directly related just because they are responsible is excessive. An industry insider said, "While sanctions against institutions are justifiable, expanding punishment to CEOs as actors under the reason of 'failure to establish internal control standards' without clear legal logic undermines decades of dedication to the development of the capital market." If the suspension from duty sanction is finalized by the Financial Services Commission's resolution, the affected CEOs will be barred from employment in the financial sector for 3 to 5 years, effectively a banishment.

The financial authorities' stance is firm. FSS Governor Yoon Seok-heon stated at the National Assembly's Political Affairs Committee audit on the 13th, "Employee misconduct results from the failure of internal controls," indicating that selling firms' CEOs bear responsibility.

Criticism of the FSS's failure in internal control is also intensifying. The day before, civic groups such as the Financial Justice Solidarity, People's Solidarity, and Financial Monitoring Center held a press conference condemning the FSS for neglecting the Lime and Optimus incidents and demanded a public audit by the Board of Audit and Inspection on the FSS, which allowed the fund frauds to grow.

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