Financial Supervisory Service Without Yoon Seokheon: Impact on Bank Sector Disciplinary Committees and Subcommittees

FSS, Shift in Stance on Strict Sanctions and Supervision?
KIKO, Private Equity Sanctions Review, and Comprehensive Inspections May Drift↑
FSS: "Unrelated to Former Director Yoon... Will Handle According to Principles and Rules"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Jin-ho] "There are voices not only within the financial sector but also inside the authorities saying that the Financial Supervisory Service (FSS) chief wielded his authority too harshly during his tenure. It is expected that the tough stance will ease somewhat until a new head takes office. (Financial authority official A)"

There is a forecast that the rigid, one-sided approach to financial company sanctions and supervisory intensity maintained by the FSS over the past three years will undergo a shift. Analysts say that with former FSS chief Yoon Seok-heon’s departure, a change in the FSS’s tough stance has become inevitable.

According to the financial sector on the 13th, major commercial banks and financial holding companies are on high alert for any changes in the FSS’s stance that may be detected during upcoming Dispute Mediation Committee (DMC) and Sanctions Review Committee (SRC) meetings. Since former chief Yoon left and the acting senior deputy chief Kim Geun-ik, who comes from the Financial Services Commission (FSC), took over, there are voices suggesting that the sharp edge aimed at the financial sector, such as CEO disciplinary actions, may not be maintained.

In particular, the first area to be affected by former chief Yoon’s resignation is the foreign exchange derivative product KIKO (Knock-In Knock-Out) compensation issue in the banking sector. The KIKO case involved export companies subscribing to avoid exchange rate fluctuation risks in 2008, resulting in massive damages amounting to about 3 trillion won. Although the Supreme Court ruled no fraud in KIKO, former chief Yoon strongly pushed the issue after taking office, eventually bringing it to the DMC.

In 2019, the FSS DMC recommended six banks?Woori, Shinhan, Hana, KDB Industrial, Citi, and Daegu Bank?to compensate four companies with 25.5 billion won, citing incomplete sales. However, only Woori Bank accepted the recommendation, while the other five proceeded with voluntary settlements.

However, with former chief Yoon stepping down, the KIKO issue is considered to have lost its driving force. Banks, which had been hesitant to make decisions due to concerns over breach of trust, no longer need to be wary of the FSS. A banking sector official predicted, "With former chief Yoon’s resignation, there is even a possibility that discussions may cease altogether."

Will the Sanctions Review for Private Equity Funds Ease?... Uncertainty Over Continuation of Comprehensive Inspections

The sanctions review related to private equity fund sales, such as Lime, is also a point of interest. Hana, Busan, Industrial, Gyeongnam, and Nonghyup Banks are facing upcoming sanctions reviews. Hana Bank is the first to face the review. Similar to the cases of Woori and Shinhan Banks, light disciplinary actions are expected, and with former chief Yoon, who led the private equity fund crisis, no longer present, there is speculation that the severity of sanctions may decrease.

An official from the financial authorities said, "Since former chief Yoon, who enforced consecutive heavy sanctions on bank and holding company CEOs, is no longer in office, the intensity could be lower than previous cases."

Attention is also focused on whether the comprehensive inspections, revived by former chief Yoon, will continue. The FSS currently does not plan to abolish them immediately, but depending on the tendencies of the new FSS chief, the scope of inspections and sanctions could be significantly reduced. Banks mentioned as targets for this year’s comprehensive inspections include Woori Financial Group, Woori Bank, KB Financial Group, KB Kookmin Bank, KakaoBank, and Korea Citi Bank.

However, the FSS maintains that regardless of former chief Yoon’s absence, it will carry out sanctions reviews and dispute mediation based on principles and rules. An FSS official stated, "Although there are voices anticipating a shift in stance, we hope there will be no premature judgments," adding, "Most investigations related to sanctions reviews and dispute mediation have already been completed, and for fairness, we will adhere to principles and rules."

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