Financial Company Executives and Employees Avoiding Discipline by Transferring to Subsidiaries... Pursued Until the End

Min Byung-deok, Democratic Party Lawmaker, Proposes Bill
To Discipline Subsidiaries Suffering Sanctions

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] A bill is being promoted to ensure that executives and employees of financial companies who are expected to face sanctions or are under audit and retire to move to subsidiaries can be disciplined until the end. The purpose is to close legal loopholes that allow evasion of disciplinary actions and to prevent moral hazard in financial companies.

According to political circles on the 19th, Min Byung-duk, a member of the Democratic Party of Korea, recently proposed the "Partial Amendment to the Act on the Governance of Financial Companies," which contains such provisions.

Rep. Min pointed out, "In many cases, when executives and employees expected to face sanctions or under audit retire from a financial company and move to a subsidiary of a financial holding company, the fact is only notified to the head of the financial holding company, effectively nullifying the sanctions." He explained the legislative intent, saying, "Therefore, under the current law, even if executives and employees expected to face sanctions retire or resign and move to a financial company that is a subsidiary of a financial holding company to evade sanctions, sanctions can still be imposed."

Closing Loophole Where 'Notification' Replaces Discipline if Resigned Before Sanction

The current law stipulates basic matters regarding the governance of financial companies, such as qualification requirements for executives, the composition and operation of the board of directors, and internal control systems. It also classifies disciplinary actions against executives and employees of financial companies into five levels: ▲recommendation for dismissal ▲suspension of duties ▲reprimand ▲cautionary warning ▲warning. Among these, 'reprimand' or higher is considered a severe disciplinary action. Executives who receive severe disciplinary actions cannot be re-employed in the financial sector for a certain period. The re-employment ban periods are 3 years for reprimand, 4 years for suspension of duties, and 5 years for recommendation for dismissal.

However, for retirees who resign first and are difficult to discipline, the matter is replaced by 'notification of illegal acts of retirees' to the head of the relevant institution. In the worst case, if they resign before sanctions and move to a subsidiary, only notification to the former employer’s head is made, and the matter may end there. This bill allows the Financial Services Commission to impose sanctions on executives and employees who retired from financial holding companies but are re-employed or working at subsidiaries, or to request measures from the subsidiaries.

While the financial sector agrees with the legislative intent, it is expected to have little impact. A financial holding company official said, "It is currently difficult to find cases where people move to subsidiaries to evade sanctions," and added, "I understand this bill as a measure to supplement legislative deficiencies and prevent moral hazard." In fact, Sohn Tae-seung, chairman of Woori Financial Group, and Ham Young-joo, vice chairman of Hana Financial Group, who received severe disciplinary actions due to the overseas interest rate-linked derivative-linked product (DLF) incident during their tenure as bank presidents, moved from banks to financial holding companies but were still sanctioned. They are currently disputing related matters in court.

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