[Reporter’s Notebook] The Bittersweet Aftertaste of KIKO 'Compensation'

"Banks making a magnanimous decision on the (KIKO issue) is about upgrading the financial system through building trust with customers." (Yoon Seok-heon, Governor of the Financial Supervisory Service, December 2019 press luncheon with reporters)

"It is not easy for financial companies to refuse the FSS's demands. Moreover, with increased pressure from strengthened inspections and sanctions, how could they possibly withstand it?" (A representative from a commercial bank)

There is a significant gap in perspectives between the Financial Supervisory Service (FSS) and banks regarding compensation for companies affected by the foreign exchange derivative product KIKO. The procedural essence of KIKO compensation lies in whether there is legal liability for compensation. Legal judgments on allegations such as fraud have already been made, and the statute of limitations for claims for damages has expired, making the basis for compensation weak.

Shinhan Bank's decision on the 15th at its board meeting to provide 'compensation' rather than 'reparation' reflects this contradiction. It is a compromise in the form of compensation bearing social responsibility rather than legally acknowledging liability. Previously, Korea Citibank also decided on compensation in the same context. The FSS and banking sector expect that other banks will prepare and present compensation plans as early as next month.

The FSS, following Governor Yoon Seok-heon's conviction, put the KIKO compensation issue on the agenda, and when the compensation recommendation prepared last year failed to take effect, it launched a consultative body under the pretext of 'voluntary compensation discussions' by banks. This is the background behind the unprecedented extralegal and social compensation decision.

The problem lies behind the rhetoric of 'voluntariness.' Many banking officials point out that under the 'Yoon Seok-heon regime,' increasing pressure forced decision-making reluctantly, like "crying while eating mustard."

A representative from a commercial bank said, "Since Governor Yoon's inauguration, comprehensive inspections have been reinstated, and financial company executives have been consecutively severely disciplined, making the FSS's 'signals' stronger than ever," adding, "The consultative body led by the FSS can be seen as having the character of a backlash against the non-acceptance of the recommendation."

Another bank official lamented, "Inspections and sanctions by the FSS are ultimately carried out by people," and said, "With the FSS going this far, how could we not be cautious?"

Of course, the primary responsibility for the KIKO incident lies with the banks that sold the flawed product. It is hard to deny voices that evaluate this compensation as setting a new milestone for consumer protection and damage compensation. However, it is worth reflecting on whether the FSS is overly focused on post-incident sanctions or compensation by emphasizing the value of consumer protection rather than striving to prevent financial accidents in advance.

Why would the Board of Audit and Inspection intervene in the FSS audit related to the Optimus incident? The whispers surrounding various attempts at consumer protection can also be seen as an issue of trust in the FSS within the financial sector. The restoration of trust, which Governor Yoon has repeatedly emphasized, is not a matter that applies only to financial companies.

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