Record Number of FSC Disciplinary Hearings Held Last Year Due to Private Equity Fund Scandal

[Asia Economy Reporter Song Hwajeong] Due to the Lime and Optimus private equity fund scandals, the Financial Supervisory Service's Disciplinary Committee held the highest number of meetings ever last year.

According to the Financial Supervisory Service's '2021 Annual Report' released on the 19th, the Disciplinary Committee convened 40 times last year, setting a record high. Previously, it met 26 times in 2019 and 33 times in 2020.

During the 40 disciplinary meetings, a total of 314 agenda items were reviewed, with 363 individuals subject to sanctions attending. Among them were Sohn Tae-seung, Chairman of Woori Financial Group, and Jin Ok-dong, President of Shinhan Bank.

The increase in disciplinary meetings last year was due to the Lime and Optimus private equity fund scandals. In relation to the large-scale incomplete sales of private equity funds that occurred in 2019, the Financial Supervisory Service conducted inspections targeting numerous sales companies, issuers, and asset managers. As a result, the sanction procedures that began in 2020 for the detected regulatory violations have continued through 2021 and into this year. Last month, regarding the Lime Asset Management private equity fund's suspension of redemptions, the Financial Supervisory Service imposed a three-month partial business suspension and a fine of 5.7 billion KRW on Shinhan Bank for incomplete sales of the fund, and sanctioned 10 executives and employees. Regarding the heavy disciplinary action against Sohn Tae-seung, Chairman of Woori Financial Group, due to losses from the overseas interest rate-linked derivative-linked fund (DLF), litigation is ongoing.

As the number of Disciplinary Committee meetings and sanctioned individuals increased, the Financial Supervisory Service has also been focusing on protecting the rights of those subject to sanctions. To support the defense rights of sanctioned individuals who cannot afford to appoint legal representatives, the Financial Supervisory Service introduced the Disciplinary Committee Rights Protection Officer system in 2018. Last year, 70 sanctioned individuals applied and received support from the Rights Protection Officers. Additionally, sanctioned individuals actively exercise their defense rights by utilizing the oral hearing system introduced in 2018, directly explaining their opinions on the appropriateness of sanctions and sanction levels to the Disciplinary Committee members and rebutting the inspection department's opinions. A Financial Supervisory Service official explained, "The Disciplinary Committee, an advisory body to the Financial Supervisory Service Governor, listens directly to the opinions of sanctioned individuals and reviews the appropriateness of the sanctions proposed by the inspection department, advising the Governor to ensure fairness in sanctions and protection of the rights of those subject to sanctions."

The Financial Supervisory Service pointed out a total of 2,012 issues in its inspections of financial institutions last year, a 16.6% decrease compared to the previous year. By type, management and internal control-related issues were the most frequent at 667 cases, accounting for 33.2%. Other significant categories included IT (14.4%), insurance sales (14.1%), and credit (11.9%). By required action, local corrective actions were the most common at 660 cases (32.8%), followed by disciplinary actions at 572 cases (28.5%) and improvements at 403 cases (20.0%).

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