Rhyme's Severe Disciplinary Action Draws Criticism Toward Financial Supervisory Service: "Shifting Blame for Supervisory Failure" (Comprehensive)

Disciplinary Actions May Lead to Employment Restrictions... High Possibility of Administrative Lawsuits
Financial Authorities Criticized for 'Passing the Buck', National Financial Union Says "Authorities Must Also Take Responsibility"

[Asia Economy Reporter Kwangho Lee] As the financial authorities issue consecutive heavy disciplinary notices to current and former CEOs in the financial sector who sold Lime Asset Management’s funds, concerns about the financial authorities’ supervisory negligence are resurfacing. In the Lime scandal, which triggered redemptions worth 1.6 trillion KRW, the Financial Supervisory Service’s (FSS) lax oversight has been identified as a major cause, yet criticism is mounting 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 are implicated in criminal acts related to the Lime scandal.

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, was suspended from duty, and Jin Ok-dong, president of Shinhan Bank, received a severe disciplinary warning. Cho Yong-byeong, chairman of Shinhan Financial Group, was issued a cautionary warning.

The FSS explained that the difference in disciplinary levels between Chairman Sohn and President Jin was due to the varying disciplinary levels of the ‘actors’ involved in the incomplete sales at each bank. At Woori Bank, the head of the division responsible for incomplete sales was preliminarily notified of the highest disciplinary level, ‘dismissal,’ while at Shinhan Bank, the corresponding person was notified of ‘suspension from duty.’ Consequently, Chairman Sohn and President Jin received disciplinary levels one step below those individuals, ‘suspension from duty’ and ‘severe disciplinary warning,’ respectively.

Banking Sector Bewildered and Resisting... "Disciplinary Grounds Are Weak"
Controversy Over Strict Accountability Only for Banks

As the financial authorities’ heavy disciplinary measures were notified, the financial sector is pushing back, arguing that only financial companies are being held to strict standards. They criticize that while the financial authorities’ responsibility for failing to prevent the private equity fund scandal cannot be ignored, only the CEOs of financial companies are being blamed. During last year’s overseas interest rate-linked derivative-linked fund (DLF) scandal, the FSS also sparked controversy by excluding the ‘Capital Markets Act,’ which forms the basis for sanctions on incomplete sales, while considering heavy CEO disciplinary actions and instead invoking the ‘Financial Company Governance Act’ citing inadequate internal controls.

Moreover, despite the revelation that an FSS 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 light 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 action was taken. Previously, 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 exacerbated the scale of fund scandal damages.

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

Financial companies argue that since the Financial Services Commission (FSC) excessively relaxed regulations, which was the root cause of the private equity fund scandal, 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 KRW to 100 million KRW.

On the 13th, in front of the Financial Supervisory Service in Yeongdeungpo-gu, Seoul, members of the National Private Equity Fund Fraud Victims Joint Countermeasures Committee held a rally urging dispute mediation for victim protection. Photo by Moon Honam munonam@

Civic Groups: "Financial Authorities Must Also Take Responsibility for Supervisory Failures"
Experts Point Out the Problem of Biased Standards Against Management

Civic groups also condemned the financial authorities, stating they must take responsibility for policy and supervisory failures.

The National Financial Industry Labor Union stated in a press release on the 3rd, “A close examination of this private equity fund scandal reveals that the responsibility of financial policy and supervisory authorities is significant.” They emphasized that the root cause lies in the distorted ethics of asset management companies exploiting the ‘Chinese Wall’ (Capital Markets Act Article 45, ‘Principle of Information Exchange Blocking’), a device or system that blocks information exchange between departments or affiliates within financial companies.

The Financial Labor Union criticized, “Supervisory authorities are unilaterally blaming financial workers, who are coerced into sales under threat of personnel sanctions at the frontline, solely for incomplete sales. They are labeling bank workers who sold products difficult for investors to intuitively understand as immoral people chasing only performance and responding with heavy disciplinary actions.” The union also called for fundamental improvements in financial policies, including effective regulatory measures for private equity funds and practical disciplinary measures, rather than one-off showy punishments.

Experts point out that 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 injunctions for suspension of effectiveness. 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.