Disciplinary Action Against Lime Seller Delayed Again... Conclusion at 3rd Sanction Review

Securities Firm CEO Disciplinary Sanction Level Adjustment Draws Attention

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[Asia Economy Reporter Park Jihwan] The final decision on the disciplinary measures against securities firms that sold Lime Asset Management products is expected to be made at the third disciplinary hearing scheduled for the 10th, after two previous hearings by the Financial Supervisory Service's (FSS) Disciplinary Committee failed to reach a conclusion. The securities industry is closely watching whether the disciplinary severity for current and former CEOs will be reduced from the original proposals at the upcoming third hearing.

According to industry sources on the 6th, the FSS disciplinary committee deliberated on the sanctions related to the Lime incident until around 11 p.m. the previous day but did not reach a conclusion. The hearing reviewed cases in the order of Daishin Securities and KB Securities. Discussions regarding Shinhan Financial Investment took place during the first hearing on the 29th of last month, which was attended by former CEOs Kim Hyungjin and Kim Byungchul.

The key issues in this disciplinary hearing were not significantly different from those in the first hearing. The FSS held the current and former CEOs of the selling securities firms accountable based on Article 24 of the Act on Corporate Governance of Financial Companies, which requires financial companies to establish internal control standards, and Article 19 of the Enforcement Decree, which mandates effective internal control standards. However, the industry argued that punishing CEOs as direct actors for failing to properly establish and manage internal control standards is an excessive measure.

The securities industry's main focus is whether the disciplinary severity for CEOs will be adjusted at the third hearing. The third hearing is expected to discuss the criteria for disciplinary severity based on statements and materials from both the FSS inspection department and the securities firms.

The FSS had previously issued advance notices of severe sanctions such as corrective orders to each institution. In particular, current and former CEOs of these securities firms were informed of severe sanctions with the possibility of suspension from duties. Employee sanctions range in severity from caution, cautionary warning, reprimand warning, suspension from duties, to dismissal requests.

It is reported that during the first and second hearings, the securities firms made every effort to reduce the disciplinary severity against their CEOs. Since the final sanctions are determined by comprehensively reviewing the draft sanctions, the firms' explanations, and the extent of consumer damage relief, they actively appealed their efforts to resolve consumer damages, including preparing pre-compensation plans for investors.

However, since a high-level sanction such as suspension from duties has already been pre-announced, the general view is that even if the disciplinary severity is reduced, a moderate sanction at the level of a reprimand warning is unavoidable. In this case, the CEO would face a three-year ban on employment in the financial sector, which is shorter than the four-year suspension from duties, effectively leading to their exit from the industry, so there is little practical difference.

Even this possibility is not high. During the overseas interest rate-linked derivative-linked fund (DLF) incident, which caused massive principal losses, the reprimand warnings pre-notified to Sohn Tae-seung, Chairman and CEO of Woori Financial Group and Woori Bank, and Ham Young-joo, Vice Chairman of Hana Financial Group (then CEO of Hana Bank during the DLF sales), were confirmed as is at the disciplinary hearing.

The disciplinary committee's decision must be approved by the Securities and Futures Commission and the Financial Services Commission, so the final decision is expected around the end of the year. Depending on the severity of the sanctions, the securities industry may also consider legal responses. Bank heads who received reprimand warnings in the DLF incident filed administrative lawsuits to cancel the sanctions and injunctions to suspend their effects in protest.

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