Rhyme Fund and Samsung Life Disciplinary Actions... Will Year-End Completion Be Missed?

Sanctions Proposals Delayed Over a Year Without Final Confirmation, Postponed Repeatedly Across Years

Financial Services Commission Chairman Ko Seung-beom is speaking at the 'Meeting for the Activation of Financial Platform Innovation' held at Front1 in Mapo-gu, Seoul on the 15th. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Oh Hyung-gil] Attention is focused on the financial industry ahead of the Financial Services Commission's regular meeting scheduled for the 22nd of this month. Since the meeting is usually held every other Wednesday, it is expected to be the last meeting of the year.

However, once again, agenda items involving disciplinary actions or severe sanctions against financial company CEOs have not been submitted and have been postponed until next year, leading to growing controversy over the background. Related companies are also expressing difficulties due to the uncertainty from the authorities.

According to the financial sector on the 21st, the agenda items that the FSC has been unable to finalize for over a year include CEO disciplinary actions based on inadequate internal control standards under the Financial Company Governance Act related to the Lime Fund, and sanctions related to the comprehensive inspection of Samsung Life Insurance.

At last month's regular meeting, the FSC finalized sanctions such as partial suspension of business against Daishin Securities, Shinhan Financial Investment, and KB Securities in connection with the incomplete sales of the Lime Fund. This came about a year after the Financial Supervisory Service decided on severe sanctions against these securities firms through its disciplinary committee in November last year.

However, disciplinary actions against CEOs who neglected internal controls have been postponed until next year. Previously, the FSS decided to close Daishin Securities' Banpo WM Center in Seoul and impose fines, and to partially suspend business and impose fines on Shinhan Financial Investment and KB Securities.

Along with this, former Daishin Securities CEO Na Jae-cheol (currently Chairman of the Korea Financial Investment Association), former Shinhan Financial Investment CEO Kim Hyung-jin, and former KB Securities CEO Yoon Kyung-eun were given 'job suspensions,' while KB Securities CEO Park Jung-rim received a 'reprimand.' These are all considered severe disciplinary measures, and if finalized, these former and current CEOs will be barred from reemployment in the financial sector for the next 3 to 4 years, which is expected to have significant ripple effects.

The FSS cited violation of the Enforcement Decree of the Financial Company Governance Act, which requires establishing effective internal control standards, as the basis for sanctions. However, the securities firms have opposed the severe disciplinary actions against CEOs based on failures in internal control systems, arguing that it is excessive.

In particular, a variable emerged when, in August, the court ruled in favor of Woori Financial Group Chairman Sohn Tae-seung in the first trial of his lawsuit against the FSS to cancel severe sanctions related to derivative-linked funds (DLF), stating that "whether internal controls were neglected under the Governance Act is not grounds for sanctions."

The final decision on sanctions against Samsung Life Insurance for non-payment of cancer insurance hospitalization fees at long-term care hospitals has also been postponed beyond this year. The FSS conducted a comprehensive inspection of Samsung Life Insurance in 2019, and in December last year, the disciplinary committee decided on an 'institutional warning,' a severe sanction, and referred the case to the FSC.

Since then, while the FSC processed some agenda items from the comprehensive inspection in July, it has continued to delay decisions on contentious issues such as non-payment of cancer insurance and violations of major shareholder transaction restrictions.

This issue also faces conflicting legal judgments. The Supreme Court upheld the second trial's decision, which ruled in favor of Samsung Life Insurance in a cancer insurance claim lawsuit filed by a co-representative of a cancer patient group. The court recognized the second trial's finding that hospitalization in a long-term care hospital for treating aftereffects or complications following cancer or cancer treatment is not directly related to cancer treatment.

A financial industry official said, "All the sanction agenda items involve sharply divided opinions and legal issues arising from court rulings," but added, "Although the authorities say they will handle the matters promptly, financial companies are facing significant difficulties having to wait indefinitely."

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