Financial Company Executives and Employees' 'Trick' of Avoiding Disciplinary Action by Moving to Subsidiaries to Be Prevented (Comprehensive)

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. However, it is pointed out that since it takes time to pass the bill and there are few related cases, it is difficult for it to have a direct impact on recent large-scale sanctions expected in cases such as the Lime incident sanctions.

According to the 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" containing such content.

Rep. Min pointed out, "In many cases, when executives and employees who are expected to face sanctions or are under audit retire from financial companies and move to subsidiaries of financial holding companies, 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 who are expected to face sanctions retire or resign and move to financial companies that are subsidiaries of financial holding companies to evade sanctions, sanctions can still be imposed."

The current law stipulates basic matters concerning the governance of financial companies, such as the qualifications of financial company 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 corresponds to severe disciplinary action. Executives who receive severe disciplinary action 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.

Filling the Loophole by Replacing 'Notification' When Retiring Before Discipline

However, for retirees who leave 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 retire before sanctions and move to subsidiaries, only notification to the head of the previous workplace is made, and the matter may end there. This bill allows the Financial Services Commission to impose sanctions on executives and employees of financial holding companies who retire and are re-employed or currently employed in subsidiaries, or to request measures from the subsidiaries.

While the financial sector sympathizes 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 avoid sanctions," and added, "I understand this bill as one 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 were severely disciplined for 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.

It is also pointed out that it is difficult for the bill to have a significant impact on the Lime incident, where large-scale sanctions by financial authorities are expected. The bill is set to take effect six months after promulgation. Since there is a period for bill review, the bill is expected to be implemented around the end of this year at the earliest. A representative from Rep. Min’s office said, "As there is no retroactive application clause, this is not a bill targeting a specific situation," and added, "It is a bill to prevent moral hazard in the financial sector."

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