[Exclusive] Securities Firm CEO Sanction Proposal Submitted... Intense Debate Over Severe Disciplinary Action for Park Jeongrim and Jeong Youngchae (Comprehensive)

Final Agenda for Regular Meeting at 2 PM on the 29th
Severe Disciplinary Actions for Park Jeongrim and Jeong Yeongchae May Be Delayed Until December Due to Disputes

The Financial Services Commission (FSC) is drawing attention as to whether it will finalize the disciplinary measures against the CEOs of Lime and Optimus sales companies at the regular meeting scheduled for 2 p.m. on the 29th. The targets are Jung Young-chae, President of NH Investment & Securities, Park Jung-rim, President of KB Securities, and Yang Hong-seok, Vice Chairman of Daishin Securities. It has been confirmed that the disciplinary measures against these CEOs were finally listed as agenda items for the regular meeting at 2 p.m. that day.

According to a senior official of the financial authorities, the agenda item for the securities company CEOs' disciplinary measures was not listed as of the evening before because the ministerial reporting procedure had not been completed after the agenda subcommittee. Therefore, if the agenda was not listed, the final discussion was expected to be postponed to the next month's regular meeting. However, since the decision was made to finally list the agenda that morning, the review and discussion of the disciplinary measures are scheduled to take place at 2 p.m.

However, since there is no consensus on the heavy disciplinary measures against President Park Jung-rim and President Jung Young-chae, there remains a possibility that the FSC may postpone the decision on the disciplinary measures against these CEOs to next month. Regular meetings are usually held every other Wednesday. If a unanimous conclusion is not reached at this regular meeting, the final decision on the securities company CEOs' disciplinary measures is expected to be made at the regular meeting on Wednesday next month. However, the plan is to finalize it within the year. Kim Ju-hyun, Chairman of the FSC, told this publication, "We will finalize the CEO disciplinary measures within the year."

The financial authorities' disciplinary review process goes through the stages of 'Financial Supervisory Service (FSS) Disciplinary Review Committee → Agenda Subcommittee → FSC Securities and Futures Commission → FSC Agenda Subcommittee → FSC Regular Meeting Resolution.' Fines and surcharges on financial companies go through the Securities and Futures Commission in advance, but disciplinary actions against executives or business suspensions of institutions are reviewed and resolved by the FSC.

In November 2020, the FSS held a disciplinary review committee meeting and decided on heavy disciplinary measures of 'reprimand warning' against Park Jung-rim, President of KB Securities, and Yang Hong-seok, Vice Chairman of Daishin Securities, for violations such as failure to establish internal control standards related to the Lime fund incident (violation of the Financial Company Governance Act). In March 2021, the FSS also resolved a heavy disciplinary measure of 'reprimand warning' against Jung Young-chae, President of NH Investment & Securities, for violations such as failure to establish internal control standards related to the Optimus fund sales. The FSS disciplinary review is an advisory body to the Financial Supervisory Service Commissioner and does not have legal effect; the final decision must be made through the FSC resolution to take effect.

The FSC suspended the review of disciplinary measures against sales company CEOs after the end of March last year. At that time, the FSC explained the suspension reason as "It is necessary to sufficiently confirm and review consistency and coherence among disciplinary measures, the court's stance on similar cases, and the impact on stakeholders before proceeding with the review." The review resumed earlier this year. This was after the administrative lawsuit filed by former Woori Financial Group Chairman Son Tae-seung, who requested the cancellation of the heavy disciplinary measures he received from the financial authorities related to the derivative-linked fund (DLF) loss incident, resulted in the confirmation of the lower court's cancellation of the FSS's reprimand warning. The lawsuit confirmed the Supreme Court's basic legal principle regarding the 'duty to establish internal control standards.' The FSC decided to clearly apply the internal control-related legal principles established through Supreme Court precedents to each individual case. At that time, the industry expected this to work favorably for securities company CEOs who had received heavy disciplinary judgments from the FSS for violations of internal control standards under the Financial Company Governance Act, similar to former Chairman Son. This is because the first and second trials and the Supreme Court all ruled that there is no basis under current law to sanction violations of the duty to comply with internal control standards and that the duty to establish and the duty to comply with standards must be distinguished.

The FSC has been intensively reviewing the matter by holding several agenda subcommittee meetings this year to examine the issues and legal principles of the agenda. The CEOs reportedly pleaded for leniency, stating, "We have strengthened investor protection and internal controls and have worked hard to compensate victims." Initially, since the securities companies actively took steps to remedy damages, it was considered as a mitigating factor, and there was consideration to lower the level of disciplinary measures by one step, but the situation began to change due to variables. The FSS has been conducting additional inspections related to the three major funds (Lime, Optimus, Discovery) since early this year and uncovered new illegalities. Moreover, the public opinion toward the securities industry has worsened due to successive incidents. The financial authorities are pointing out internal control issues in securities companies. The FSS has strongly urged securities companies to re-examine internal control issues from scratch and warned that they will hold them accountable if internal control duties are neglected.

The FSC held an agenda subcommittee on the 23rd to discuss the disciplinary measures against these individuals. Subsequently, President Park Jung-rim was notified that she could receive a 'suspension of duties' penalty higher than the FSS's disciplinary decision. Typically, when the disciplinary level rises above the disciplinary review decision, prior notice is given to provide the party with an additional opportunity to explain. For President Jung Young-chae, the same 'reprimand warning' penalty as before was discussed. For Vice Chairman Yang Hong-seok, the discussion was to lower the disciplinary level by one step from the FSS disciplinary review decision of 'reprimand warning' to a 'cautionary warning.'

In the case of Vice Chairman Yang Hong-seok, since it was confirmed that the agenda subcommittee discussed lowering the disciplinary measure by one step, it seems likely that he will avoid heavy disciplinary measures unless there is a variable in the final decision. Vice Chairman Yang is the grandson of Yang Jae-bong, the founder of Daishin Securities, and has served as Vice Chairman of Daishin Securities since 2021. As a so-called 'owner executive,' he holds 10.19% of Daishin Securities shares as of the end of September. There was no disagreement about lowering the disciplinary level against Vice Chairman Yang, but there is still no consensus on the heavy disciplinary measures against President Park Jung-rim and President Jung Young-chae. Therefore, intense discussions are expected until the final conclusion of the meeting that day.

The disciplinary levels for financial company executives are divided into five stages: △recommendation for dismissal △suspension of duties △reprimand warning △cautionary warning △caution. Among these, disciplinary measures of reprimand warning or higher are classified as heavy disciplinary measures because they restrict reappointment and employment in the financial sector for 3 to 5 years. President Park Jung-rim's term was extended by one year at the end of last year, and she has been serving as President of KB Securities for four years. President Jung Young-chae, who has been in charge since 2018, also succeeded in his third consecutive term in March last year after the Optimus fund incident and has held the position for six years. The third consecutive term is the first in NH Investment & Securities history. Vice Chairman Yang Hong-seok, who was President during the Lime fund incident, was promoted to Vice Chairman in 2021, and his term lasts until March 31, 2024.

President Park Jung-rim and President Jung Young-chae, whose terms expire at the end of this year and in March next year respectively, will be significantly affected in company management if the heavy disciplinary measures are finalized, as reappointment will effectively become impossible. Accordingly, there is also a possibility of administrative lawsuits arising depending on the results after the FSC's disciplinary measures.

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