Attention on Disciplinary Level for Hana Bank in 'Lime Incident' Following Subcommittee Results (Comprehensive)

Observations on Disciplinary Mitigation if Compensation Plan Accepted by Punishment Review Committee
Final Decision Expected in Mid-August

[Asia Economy Reporter Kim Jin-ho] The Financial Supervisory Service (FSS) has decided to compensate investors of Lime Asset Management's private equity funds sold by Hana Bank and Busan Bank for 40-80% of their losses, and the level of sanctions against these banks is expected to be finalized soon.

Since other banks previously accepted the FSS's compensation plan, resulting in reduced disciplinary measures, the market expects Hana Bank and Busan Bank to actively accept the compensation plan as well. Even if the victims do not accept the compensation plan, if the banks' relief efforts are recognized, the level of sanctions is mitigated.

According to the financial sector on the 14th, the FSS held a dispute mediation committee meeting the day before and decided on compensation of up to 80% for the Lime funds sold by Hana Bank and Busan Bank.

The dispute mediation committee ordered Hana Bank and Busan Bank to compensate investors who purchased Lime funds at rates of 65% and 61%, respectively. For other investors, compensation will be autonomously adjusted within a range of 40-80% according to compensation standards. However, in the case of Daishin Securities, opinions among committee members were divided, so further discussion will be held later. An FSS official stated, "Daishin Securities has contentious issues, so another dispute mediation committee meeting will be held, but the date has not been set."

Based on the dispute mediation committee's results, the FSS plans to hold a disciplinary review committee meeting on the 15th targeting Hana Bank. The FSS disciplinary review will examine four funds sold by Hana Bank simultaneously. Hana Bank sold Lime funds, which were identified as fraudulent, worth 87.1 billion KRW. It also sold the Italy Healthcare Fund (110 billion KRW), the Germany Heritage Fund (51 billion KRW), and the Discovery Fund (24 billion KRW), which were involved in controversies over incomplete sales and redemption suspensions.

Holding Hana Bank accountable for the private equity fund incident, the FSS reportedly issued a preliminary notice of a severe institutional warning to Hana Bank earlier this month. It is also known that Jiseong-gyu, then CEO of Hana Financial Group, received a disciplinary warning or higher.

However, by accepting the dispute mediation committee's recommendation notified on this day, the level of sanctions against Hana Bank is likely to be reduced. This is because efforts to compensate victims are recognized as grounds for mitigating disciplinary measures. Previously, Shinhan Bank, Woori Bank, and Industrial Bank of Korea, which accepted dispute mediation plans, also had their CEO sanctions reduced at disciplinary reviews.

The FSS's disciplinary measures for financial institution executives consist of five levels: 'recommendation for dismissal - suspension of duties - disciplinary warning - cautionary warning - caution.' In April, Jin Ok-dong, who received a severe disciplinary action (disciplinary warning) from the FSS, had his sanction reduced by one level to a cautionary warning after the disciplinary review. Son Tae-seung, chairman of Woori Financial Group, and Kim Do-jin, former CEO of Industrial Bank of Korea, also had their sanctions mitigated.

Hana Bank is also highly likely to accept the dispute mediation committee's compensation decision, just like other banks. Hana Bank is expected to announce its official position on accepting the dispute mediation committee's results as early as today or by the 15th at the latest. A Hana Bank official explained, "We will decide on acceptance after sufficient review and internal procedures."

The Board of Audit and Inspection's audit results, which pointed out the FSS's inadequate management and supervision related to the private equity fund incident, are also expected to lower the level of sanctions in the disciplinary review. The Board of Audit and Inspection decided on severe disciplinary actions against FSS staff, citing negligence during the supervision of the private equity fund incident. Amid high public criticism of the FSS, if the FSS pushes forward with severe sanctions as originally planned, it is likely to face criticism both inside and outside the financial sector.

The ruling on the lawsuit filed by Son Tae-seung, chairman of Woori Financial Group, against the FSS to cancel the severe disciplinary action is also expected to have an impact. If Son wins the lawsuit, the FSS's burden will inevitably increase.

The final result of the disciplinary review for Hana Bank is expected to be announced after mid-August, considering the summer vacation period. A financial sector official said, "With the FSS chairman position vacant, imposing severe sanctions on major financial institutions could be a burdensome decision. If the dispute mediation committee's results are actively accepted, the level of sanctions is likely to be reduced."

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