Chairman of Woori Financial, 'DLF Administrative Lawsuit' First Trial Verdict... Financial Sector on Alert

Financial Supervisory Service: 'Supervisory Policy Changes' Inevitable if Defeated
Financial Services Commission to Decide CEO Sanction Level Based on Ruling

[Asia Economy Reporter Kwangho Lee] The first trial verdict in the disciplinary cancellation lawsuit filed by Sohn Tae-seung, Chairman of Woori Financial Group, against the Financial Supervisory Service (FSS) regarding the overseas interest rate-linked derivative-linked fund (DLF) will be announced on the 20th.

According to the financial sector, the Seoul Administrative Court will deliver the first trial verdict on the administrative lawsuit filed by Chairman Sohn, who opposed the FSS's sanctions related to the overseas interest rate-linked DLF incident.

Earlier, in January last year, the FSS imposed a severe disciplinary warning on Chairman Sohn, holding him responsible for the DLF incident. At the time of the DLF sales, Sohn was the CEO of Woori Bank.

If a financial company executive receives a severe disciplinary action, they are prohibited from employment in financial companies for the next three years. Accordingly, in March last year, Chairman Sohn filed an administrative lawsuit to cancel the disciplinary action and also requested a provisional injunction to suspend the disciplinary effect until the verdict is issued. The Seoul Administrative Court had previously ruled in favor of Sohn's provisional injunction request.

The key issue in this lawsuit is whether the violation of the obligation to establish internal control standards under the Financial Company Governance Act (Governance Act) can be grounds for severe disciplinary action against a CEO. According to the current Governance Act, "Financial companies must establish standards and procedures (internal control standards) that financial company executives and employees must comply with when performing their duties to comply with laws, manage soundly, and protect shareholders and stakeholders."

The FSS argues that Sohn's disciplinary action is justified based on this, stating that he failed to establish "effective" internal control standards. On the other hand, Sohn's side claims that since internal control standards were already established, disciplining the management for deficiencies is unfair.

The financial sector is paying close attention to the outcome of Sohn's lawsuit because the core issue in disciplinary actions against other financial company CEOs related to private equity funds is also whether internal control standards were established.

NH Investment & Securities CEO Jung Young-chae received a disciplinary warning in March last year for selling the Optimus Fund. In November last year, Park Jung-rim, current co-CEO of KB Securities (disciplinary warning), former Daishin Securities CEO Na Jae-cheol (suspension of duties), and former Shinhan Financial Investment CEOs Kim Hyung-jin and Kim Byung-chul (suspension of duties and cautionary warning respectively) were disciplined. Additionally, Ji Sung-kyu, Vice Chairman of Hana Financial Group, has also been preliminarily notified of a disciplinary warning.

If the FSS loses the case, the legitimacy of the private equity fund sanctions conducted so far could be shaken. In this case, a change in the FSS's supervisory policy would be inevitable.

Yoon Chang-hyun, a member of the National Assembly's Political Affairs Committee from the People Power Party, advised Financial Supervisory Service Governor Jung Eun-bo, saying, "I urge you to remove politics from the FSS and start supervisory innovation and a major transformation so that you can provide supervisory services to financial companies. With the current squeezing, rushing, and targeting-style supervision, it is impossible to prevent large-scale financial accidents or provide comfort to financial consumers."

The Financial Services Commission plans to decide the disciplinary levels for other CEOs based on the court's verdict.

Financial Services Commission Chairman Eun Sung-soo said in a meeting with reporters regarding private equity fund sanctions, "(The first trial verdict) is imminent, so I think it is meaningful to see the result."

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