Third Disciplinary Hearing for Lime Fund Selling Securities Firms... Attention on Disciplinary Severity

[Asia Economy Reporter Park Jihwan] The third disciplinary review committee of the Financial Supervisory Service (FSS) for securities firms selling Lime Asset Management funds, which faced a redemption suspension crisis involving private equity funds worth around 1.6 trillion KRW, will be held on the afternoon of the 10th.

Attention is focused on whether the heavy sanctions imposed by the FSS in advance on institutions such as Shinhan Financial Investment, Daishin Securities, KB Securities, and their current and former CEOs will be confirmed as is in this disciplinary review.

The FSS plans to conduct the third disciplinary review for Lime fund securities firms at 2 p.m. at its headquarters in Yeouido, Seoul. The securities firms had fiercely defended themselves during the first and second disciplinary reviews held on the 29th of last month and the 5th of this month. At these sessions, former CEOs Kim Hyung-jin and Kim Byung-chul of Shinhan Financial Investment, and CEO Park Jeong-rim and former CEO Yoon Kyung-eun of KB Securities, among others, attended in person to provide explanations.

Since the securities firms have already presented their explanations and the FSS Inspection Bureau has given its statements during the previous two sessions, additional inquiries centered on the committee members are expected at this disciplinary review.

Currently, these securities firms have been preliminarily notified of heavy sanctions such as corrective orders. In addition, current and former CEOs have been preliminarily notified of heavy sanctions, including 'suspension of duties,' holding them accountable for deficiencies in internal control standards.

The core issue is whether management can be sanctioned by holding them responsible for internal control failures. The FSS is holding current and former CEOs accountable based on Article 24 (Internal Control Standards) of the Act on Corporate Governance of Financial Companies, which states that 'financial companies must establish internal control standards,' and Article 19 of its Enforcement Decree, which requires 'effective internal control standards.' The FSS argues that securities firm CEOs can be considered 'actors' who failed to establish key internal control standards, making them subject to sanctions.

However, the securities firms are opposing this, arguing that the sanctions lack legal grounds. They contend that expanding punishment to CEOs as actors on the grounds of 'deficiencies in internal control standards' is difficult to accept, and that sanctioning CEOs is excessive given that the relevant amendment to the Corporate Governance Act has not yet passed the National Assembly.

The securities industry is also closely watching the outcome of this disciplinary review. About 30 industry CEOs submitted a petition to the FSS on the 27th of last month requesting leniency regarding the Lime incident, drawing attention to whether this will positively influence the sanction decision.

If the committee members fail to reach a conclusion easily during this disciplinary review, there is a possibility that the sanction level will not be decided on the day and a fourth disciplinary review may be held. On the other hand, even if the FSS announces a sanction decision, it is not the final decision. The sanction level is expected to be finalized around the end of the year after approval by the Securities and Futures Commission and the Financial Services Commission.

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