If the 'Rhyme Severe Disciplinary Action' is Confirmed, Governance of Woori and Shinhan Will Inevitably Be Impacted

Suspension and Warning, 'Reappointment Restriction' as a Strong Sanction
Rising Management Uncertainty and Potential Confusion from Litigation Battles

Source=Yonhap News

[Asia Economy Reporter Kim Hyo-jin] The Financial Supervisory Service (FSS) has notified high-level sanctions involving restrictions on reappointment to Sohn Tae-seung, Chairman of Woori Financial Group, and Jin Ok-dong, President of Shinhan Bank, in connection with the 'Lime Fund' scandal, raising concerns that the governance structures of the respective institutions will inevitably suffer significant damage.

If the sanctions are confirmed, not only will management uncertainty increase immediately, but confusion due to appeals and lawsuits may also intensify.

According to the financial sector on the 4th, based on the results of the sector inspection related to the Lime scandal, the FSS notified Chairman Sohn and President Jin yesterday of suspension from duty and reprimand warnings, respectively. These sanctions correspond to severe disciplinary actions among the five levels of sanctions for financial company executives (recommendation for dismissal, suspension from duty, reprimand warning, cautionary warning, caution), and if confirmed, they will be barred from employment in financial companies for 3 to 5 years.

In particular, Chairman Sohn is currently engaged in a legal battle with FSS Governor Yoon Seok-heon over the reprimand warning related to the overseas interest rate-linked derivative-linked fund (DLF) loss incident earlier last year. If a suspension from duty is imposed, the aftermath is expected to be significant.

Chairman Sohn, who was at risk of losing his reappointment, avoided the crisis by filing a provisional injunction to suspend the disciplinary effect and maintained his position as chairman. He is now pursuing a main lawsuit seeking to nullify the disciplinary action. Meanwhile, if a higher-level suspension from duty related to the Lime Fund issue is confirmed, regardless of the outcome of the 'DLF disciplinary' lawsuit, a third term will be restricted.

Therefore, voices in the financial sector are increasingly predicting that Chairman Sohn may once again enter into litigation. Apart from the lawsuits, some view that receiving consecutive severe disciplinary actions within a year itself could exert pressure on his position.

A financial sector official expressed concern, saying, "It is very unusual for a financial company CEO to face such double severe disciplinary actions," adding, "That alone could already shake his leadership."

Shinhan Faces Uncertainty Over Governance Blueprint

In the case of Shinhan Financial Group, Chairman Cho Yong-byeong received a cautionary warning, which is a minor disciplinary action, so there appears to be no immediate visible impact on group-level leadership.

However, if the reprimand warning against President Jin, who leads the core affiliate Shinhan Bank and is even mentioned as a candidate for the next chairman, is confirmed, there is a high possibility that the future governance blueprint of Shinhan Financial and Shinhan Bank will become unclear.

Therefore, there is also a view that President Jin may take legal action. President Jin successfully secured a two-year reappointment in March last year.

The sales amount of Lime Fund was 357.7 billion KRW for Woori Bank and 276.9 billion KRW for Shinhan Bank. While the banks claim they were unaware of the Lime Fund's insolvency issues in advance, the FSS reportedly did not accept this. The FSS will hold a disciplinary review committee meeting on the 25th.

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