Woori and Shinhan Bank's Efforts to Remedy Lime Damage... Will Disciplinary Actions Be Reduced?

Second Sanctions Review Meeting on the 18th... Attention on Disciplinary Severity
Woori Bank Holds Emergency Board Meeting and Accepts Subcommittee Recommendation

[Asia Economy Reporter Kwangho Lee] This week, the Financial Supervisory Service's (FSS) second disciplinary review committee will be held regarding Woori Bank and Shinhan Bank, which sold Lime private equity funds. Attention is focused on whether the dispute resolution results of the two banks will influence the severity of the disciplinary measures. However, it is also suggested that Sohn Tae-seung, Chairman of Woori Financial Group, who faces a high level of disciplinary action, may still receive a severe penalty even if the severity is eased. Previously, the FSS gave institutional warnings to the two banks, and pre-notified Sohn and Jin Ok-dong, President of Shinhan Bank, of suspension from duty and a reprimand, respectively. Cho Yong-byeong, Chairman of Shinhan Financial Group, received a cautionary warning. Among these, institutional warnings, suspension from duty, and reprimands correspond to severe disciplinary actions.

Woori Bank Accepts Lime Fund Dispute Resolution Plan: "Will Promptly Pay Compensation"

According to financial sources on the 15th, Woori Bank held an extraordinary board meeting and submitted the dispute resolution committee's recommendation for approval, which was accepted. Last month, the FSS dispute resolution committee decided that Woori Bank should compensate two Lime fund investors for 68% and 78% of their losses, respectively, and Woori Bank received this recommendation earlier this month.

Shinhan Bank, after prepaying 50% of the principal of the Lime Credit Insured (CI) Fund last year, recently agreed to initiate related dispute resolution procedures. Accordingly, the FSS conducted an on-site inspection of Shinhan Bank from the 10th to the 12th and will hold a dispute resolution committee meeting next month.

The two banks are actively working on relief measures for Lime fund investors because the severity of disciplinary actions may be reduced. The FSS recognizes efforts to compensate victims as a reason for mitigating sanctions. The disciplinary review for the two banks related to the Lime private equity fund incident will be held on the 18th. The first disciplinary review on the 25th of last month did not reach a conclusion. At that time, the disciplinary review for Woori Bank was prolonged, and the review for Shinhan Bank could not proceed.

Interest in CEO Disciplinary Severity... Will the Review Be Extended Again?

Some speculate that even if the disciplinary severity for the CEOs is reduced, it will be difficult for Chairman Sohn’s penalty to be mitigated by two levels. The suspension from duty Sohn received is the second highest among five levels of sanctions: dismissal recommendation, suspension from duty, reprimand, cautionary warning, and caution. If confirmed, he will be barred from reemployment in the financial sector for four years after his term ends. Even if reduced by one level to a reprimand, he would still be barred from reemployment in the financial sector for three years, so the practical effect is similar.

Also, for President Jin, merely agreeing to initiate the dispute resolution committee is unlikely to be considered a reason for mitigating disciplinary action. However, since the disciplinary review is likely to be extended again, the acceptance of the dispute resolution committee’s proposal afterward may lead to a reduction in the severity of the penalty.

From the FSS’s perspective, forcibly imposing severe disciplinary actions on CEOs is burdensome. If severe sanctions are confirmed, administrative lawsuits challenging them are likely to follow. Above all, considering various circumstances such as the financial authorities’ management and supervisory shortcomings, many voices argue that it is difficult to place full responsibility solely on financial companies.

Concerns have also been raised that confirmed disciplinary actions could hinder licensing businesses or mergers and acquisitions (M&A) of the banks or financial groups involved. Recently, Kim Kwang-soo, Chairman of the Korea Federation of Banks, pointed out at a press conference, "Financial authorities’ disciplinary actions are relatively distant from the ‘principle of clarity,’ which is the basic stance of the Ministry of Government Legislation and the courts, increasing uncertainty and raising concerns about restricting banks’ management activities."

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