Financial Supervisory Service Draws Sword with 'Rhyme Severe Disciplinary Action'... Governance Impact Inevitable if Confirmed (Comprehensive)

Suspension and Warning for Accountability, 'Reappointment Restriction' as a Strong Sanction
Rising Management Uncertainty and Potential Confusion Due to 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 disciplinary 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, disciplinary 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 disciplinary warning related to the overseas interest rate-linked derivative-linked fund (DLF) loss incident early last year. If a suspension from duty is imposed, the repercussions are expected to be considerable.

Sohn, who was at risk of failing to secure 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 is confirmed due to the Lime Fund issue, regardless of the outcome of the 'DLF disciplinary' lawsuit, a third term reappointment will be restricted.

Therefore, voices within the financial sector are increasingly predicting that Chairman Sohn is likely to enter into another legal battle. Apart from the lawsuits, some view that receiving consecutive severe disciplinary actions within a one-year interval itself could exert pressure on his position.

A financial sector official said, "It is very unusual for a financial company CEO to face such dual severe disciplinary actions," expressing concern that "this 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 is unlikely to be an immediate visible impact on group-level leadership.

However, if the disciplinary warning against President Jin, who leads the core affiliate Shinhan Bank and is even mentioned as a candidate for the next chairman, is confirmed, it is highly likely that the future governance blueprint of Shinhan Financial and Shinhan Bank will become unclear. President Jin successfully secured a two-year reappointment in March last year.

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

In the disciplinary review against securities firms that sold the Lime Fund held in January last year, the FSS imposed suspension from duty on former KB Securities CEO Yoon Kyung-eun, former Shinhan Financial Investment CEO Kim Byung-chul, and former Daishin Securities CEO Na Jae-cheol (currently Chairman of the Korea Financial Investment Association). KB Securities CEO Park Jung-rim received a disciplinary warning.

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