Financial Supervisory Service, Why Couldn't It Decide the Disciplinary Level for IBK, the 'First Batter' (Comprehensive)

Additional Discussion at the Meeting on the 5th Next Month
Judgment on Policy Banks at a Time When Policy Finance Becomes Crucial
Barometer of Disciplinary Levels in the Banking Sector... Increasing Burden
Banking Sector: "There Are Institutional Loopholes... Unfair to Shift Responsibility for the Private Equity Fund Incident"

[Asia Economy Reporter Park Sun-mi] The Financial Supervisory Service (FSS) failed to finalize disciplinary action against former Industrial Bank of Korea (IBK) President Kim Do-jin, who caused massive losses to investors through the sale of Lime and Discovery funds, at the third disciplinary committee meeting. This contrasts sharply with last year's third disciplinary meeting, where heavy sanctions were imposed on current and former CEOs of securities firms. As the scope of disciplinary targets has expanded to include policy banks and financial holding companies, significant repercussions are expected depending on the outcome, indicating that the FSS is feeling considerable pressure.

According to financial circles on the 29th, the FSS postponed the disciplinary decision on former President Kim to the 5th of next month at the third disciplinary meeting held the previous day. The FSS stated, "At this meeting, we thoroughly heard statements and explanations from company representatives, including legal counsel, and the FSS inspection bureau."

The FSS holds a principle of imposing strong sanctions and accountability for financial company incidents and accidents, and has previously issued heavy disciplinary actions en masse against current and former CEOs of securities firms involved in Lime fund sales due to inadequate internal control standards. However, despite three meetings, the FSS has not been able to decide on the disciplinary level for former President Kim, who was reportedly pre-notified of heavy sanctions by the FSS, implying the FSS's considerable concern over the impact on the banking sector.

It is also burdensome that the first disciplinary target in the banking sector for the Lime fund scandal is a policy bank, IBK. Since policy finance has become important, heavy sanctions on a policy bank that aligns with government and financial authorities' policy finance could spark controversy.

The disciplinary decision in this case also serves as a barometer for the disciplinary levels for seven other banks that sold Lime funds, necessitating a more cautious decision. If heavy sanctions against former President Kim are confirmed, heavy disciplinary actions will be inevitable in disciplinary meetings for other banks such as Shinhan, Woori, and Hana, which sold larger volumes of Lime funds. The sales volume of Lime funds by bank is as follows: Woori Bank with 357.7 billion KRW, Shinhan Bank 276.9 billion KRW, Hana Bank 87.1 billion KRW, Busan Bank 52.7 billion KRW, Gyeongnam Bank 27.6 billion KRW, Nonghyup Bank 8.9 billion KRW, and Korea Development Bank 3.7 billion KRW.

Unlike the heavy sanctions on current and former CEOs of securities firms, the disciplinary committee for the banking sector also affects financial holding company chairmen and vice chairmen, which is uncomfortable for the FSS.

Burden of Heavy Sanctions on Policy Banks and Cautious Approach Due to Impact on Other Financial Holdings
Risk of Escalation into Multiple Lawsuits Like the DLF Incident

At the disciplinary meetings scheduled within the first quarter, Woori Financial Group Chairman Sohn Tae-seung and Hana Financial Group Vice Chairman Ham Young-joo, who served as bank presidents during the concentrated Lime fund sales period from 2018 to 2019, are within the scope of heavy sanctions. Notably, Chairman Sohn and Vice Chairman Ham already received disciplinary warnings last year related to the overseas interest rate-linked derivative-linked fund (DLF) scandal, so overlapping sanctions related to Lime funds could spark controversy over 'double punishment.'

There is also a possibility that heavy sanctions on the banking sector could escalate into large-scale litigation. Last year, in relation to the DLF scandal, Woori and Hana Financial Groups filed administrative lawsuits and injunctions against the FSS's heavy sanctions, and courts suspended the disciplinary effects, embarrassing the FSS. The banking sector argues that while financial authorities bear responsibility for inadequate system management in the private equity fund scandal, focusing disciplinary punishment solely on banks that sold private equity funds is unfair.

Meanwhile, private equity fund victims complain that although more than a year has passed since the incident, the FSS is slow in punishing those responsible, sellers are evading responsibility, and there are no measures to prevent recurrence. They also voice that responsibility should be held not only for former IBK President Kim but also for President Yoon Jong-won regarding post-incident handling and neglect of victims.

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