Rising Calls for Accountability at FSC...Only Financial Firm Heads Severely Disciplined Despite Private Equity Fund Oversight Failures

Disciplinary Actions May Lead to Employment Restrictions and Other Disadvantages... High Possibility of Administrative Lawsuits
Financial Authorities Criticized for 'Passing the Buck'... "Responsibility Debate Unavoidable"

Victims of the Lime Fund are holding a rally urging dispute mediation for victim protection regarding the Lime Fund. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Kwangho Lee] As the financial authorities have consecutively issued severe disciplinary notices to current and former CEOs in the financial sector who sold Lime Asset Management's funds, concerns over the financial authorities' supervisory negligence have resurfaced. In the Lime incident, which triggered redemptions amounting to 1.6 trillion won, the Financial Supervisory Service's (FSS) lack of oversight has been identified as a major cause, yet criticism arises that only the CEOs of financial companies are being held responsible. Voices criticizing the "double standards" (naeronambul: "romance if I do it, adultery if others do it") are growing louder, especially as some FSS employees have been implicated in criminal activities related to the Lime incident.

According to financial authorities and the financial sector on the 4th, the FSS sent preliminary disciplinary notices based on the inspection results of Woori Bank and Shinhan Bank, the sellers of Lime funds. Sohn Tae-seung, Chairman of Woori Financial Group, received a suspension of duties, and Jin Ok-dong, President of Shinhan Bank, was given a severe disciplinary warning. Cho Yong-byeong, Chairman of Shinhan Financial Group, received a cautionary warning.

With the financial authorities' severe disciplinary measures being announced, the financial sector is pushing back, arguing that only financial companies are being held to strict standards. They criticize that the responsibility of the financial authorities, who failed to prevent the private equity fund incident, cannot be ignored, yet only the CEOs of financial companies are being blamed. During last year's overseas interest rate-linked derivative-linked fund (DLF) incident, the FSS also sparked controversy by excluding the "Capital Markets Act," which is the basis for sanctions on incomplete sales, while considering severe CEO disciplinary actions and instead invoking the "Financial Company Governance Act" due to inadequate internal controls.

Furthermore, despite the revelation that an FSS internal employee handed over the entire Lime inspection plan document to Kim, a former FSS team leader (and former Blue House administrator), the FSS only imposed a minor disciplinary action (salary reduction) on the employee, drawing criticism. Notably, the place where the document was handed over was a nightlife establishment, yet no related disciplinary actions were taken. Earlier, civic groups such as the People's Solidarity for Participatory Democracy filed a public interest audit request with the Board of Audit and Inspection, stating that "the FSS's inadequate measures increased the scale of the fund incident's damage."

A financial sector official pointed out, "It is unreasonable for the FSS to impose mass disciplinary actions on management citing inadequate internal controls," adding, "It is hard to avoid the impression that all responsibility is being shifted to cover up the supervisory negligence in the private equity fund incident."

Financial companies argue that since the Financial Services Commission (FSC) excessively relaxed regulations, which was the root cause of the private equity fund incident, it is unfair to impose strict disciplinary measures only on the sellers. Previously, in 2015, the FSC led amendments to the Capital Markets Act and its enforcement decree, changing the private equity fund asset management company entry requirements from a licensing system to a registration system and lowering the minimum investment amount from 500 million won to 100 million won.

Experts also point out that the financial authorities overseeing the market are not free from responsibility. Professor Sung Tae-yoon of Yonsei University's Department of Economics said, "The biased standards against management rather than financial companies could lead to administrative lawsuits and injunction applications," and emphasized, "Since the financial authorities also bear supervisory responsibility, it is important to establish a meticulous supervisory system to prevent recurrence."

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