Woori and Shinhan Bank Disciplinary Review... Will 'Efforts to Remedy Damage' Reduce Sanctions? (Comprehensive)

Interest in Whether CEO Disciplinary Severity Will Be Reduced... Even if Chairman Son's Severity Is Eased, Severe Disciplinary Action Still Possible

Financial Supervisory Service (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] This week, the Financial Supervisory Service (FSS) will hold the second disciplinary review committee meeting 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, Son Tae-seung, Chairman of Woori Financial Group, who faces a strong disciplinary stance, is still likely to receive a severe penalty even if the severity is eased. Previously, the FSS gave institutional warnings to the two banks and pre-notified Son and Jin Ok-dong, President of Shinhan Bank, of suspension and reprimand warnings, respectively. Cho Yong-byeong, Chairman of Shinhan Financial Group, received a cautionary warning. Among these, institutional warnings, suspensions, and reprimand warnings correspond to severe disciplinary actions.

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

According to financial sources on the 15th, Woori Bank held an extraordinary board meeting and accepted the dispute resolution committee’s recommendation. 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 was notified of this recommendation earlier this month.

A Woori Bank official said, "We have resolved to accept the FSS dispute resolution committee’s decision," adding, "We will minimize customer damage by paying compensation as quickly as possible."

Shinhan Bank, after prepaying 50% of the principal for 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 this could lead to a reduction in disciplinary severity. The FSS recognizes efforts to compensate victims as grounds 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 Shinhan Bank’s review could not proceed.

Some speculate that even if the disciplinary severity for the CEOs is reduced, it will be difficult for Chairman Son’s penalty to be mitigated by two levels. The suspension Son received is the second highest sanction among five levels: dismissal recommendation, suspension, reprimand warning, 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 warning, he would still be barred from reemployment in the financial sector for three years, making the effect practically similar.

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

Financial Authorities Not Free from Responsibility... Burden in Enforcing Severe CEO Disciplinary Actions

From the FSS’s perspective, unconditionally enforcing severe disciplinary actions against CEOs is burdensome. This is because 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 sanctioned banks or financial groups. Recently, Kim Kwang-soo, Chairman of the Korea Federation of Banks, pointed out at a press conference, "The 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 potentially stifling banks’ management activities."

He also stated, "‘Disadvantageous administrative measures’ such as disciplinary actions need to be applied faithfully to relevant regulations or legal texts so that financial companies can have sufficient predictability. Through this, uncertainty in supervisory administration can be eliminated, and supervisory administration based on mutual communication and respect rather than a one-sided relationship can be realized, creating an environment for more autonomous and creative management activities."

Professor Sung Tae-yoon of Yonsei University’s Department of Economics advised, "A biased standard against management rather than financial companies can lead to administrative lawsuits and injunction applications. Since 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.