Hamyungju, Chairman of Hana Financial Group, 'DLF Heavy Sanction Canceled'... Will the Disciplinary Level Lower After Second Trial Victory? (Comprehensive)

The court overturned the first trial's verdict, recognizing only 2 out of 10 disciplinary reasons
Hana Financial Group "Will strive for effective operation of internal controls"

Ham Young-joo, Chairman of Hana Financial Group, won the appeal in a lawsuit seeking to cancel the heavy disciplinary action imposed by financial authorities related to losses from overseas interest rate-linked derivative-linked funds (DLF).

Ham Young-joo, Chairman of Hana Financial Group. Photo by Dong-joo Yoon doso7@

The Administrative Division 9-3 of the Seoul High Court (Presiding Judges Cho Chan-young, Kim Moo-shin, Kim Seung-joo) overturned the first-instance ruling that dismissed Ham’s lawsuit against the Financial Services Commission and the Financial Supervisory Service Governor seeking cancellation of business suspension and other sanctions, and ruled in favor of the plaintiff on the 29th. Former Hana Card President Jang Kyung-hoon, who was also tried together, won the case. However, the six-month partial business suspension imposed on Hana Bank was upheld.

The court canceled the financial authorities’ disciplinary action (reprimand) against Chairman Ham and accepted his appeal. The court stated, “Only two of the reasons related to the violation of the obligation to establish internal control standards are recognized,” and added, “There is an error in the factual findings that form the basis for the exercise of discretion, so it is necessary to reconsider the level of disciplinary action accordingly.”

The first trial recognized seven out of ten reasons for the sanction, but the appellate court recognized only two. The disciplinary reasons acknowledged in the second trial were: ▲ failure to establish internal control standards that separately set the validity period for using existing investor information according to internal regulations ▲ failure to establish internal control standards regarding the procedure to confirm the investor profile rating results with customers. The court viewed the remaining reasons as either lacking clarity and foreseeability, making it difficult to consider them as violations of the obligation to establish internal control standards, or as violations of the obligation to comply with internal control standards.

However, the court dismissed Hana Bank’s appeal against the Financial Services Commission regarding the six-month partial suspension of business (new sales of private funds) related to the incomplete sale of DLFs, ruling the sanction was justified. The court found that Hana Bank neglected to properly inform private bankers (PBs), which led to incomplete sales. The court stated, “Hana Bank provided information that lost balance between the profits and risks of DLFs,” and “As a result, PBs emphasized only that there was no risk of loss while failing to provide sufficient explanations to customers, leading to widespread incomplete sales of DLFs.”

DLFs are funds investing in derivative-linked securities (DLS) based on underlying assets such as interest rates, exchange rates, and credit ratings. In the second half of 2019, as global bond yields plummeted, DLSs based on U.S., U.K., and German bond yields and the DLFs investing in them incurred principal losses.

In response, financial authorities imposed a six-month partial business suspension (new sales of private funds) and a fine of 16.78 billion KRW on Hana Bank in March 2020, citing incomplete sales of DLFs. Chairman Ham, who was serving as the bank president at the time, also received a heavy disciplinary action (reprimand) for inadequate management and supervision. Disciplinary actions of reprimand or higher restrict reappointment and employment in the financial sector.

Hana Bank and Chairman Ham filed administrative lawsuits and requested suspension of execution, disputing the disciplinary actions. The court accepted the suspension of execution, acknowledging the possibility of disputing the legality of the sanctions, but ruled in favor of the financial authorities in the main lawsuit. The court at the time pointed out, “The scale of losses caused by incomplete sales is enormous, and the plaintiffs’ disregard for investor protection obligations while pursuing corporate profits alone betrays the bank’s public nature, safety, trust, and integrity,” adding, “Executives need to take responsibility commensurate with this.”

A Hana Financial Group official said, “We will take this case as another opportunity to consider the consumer’s perspective,” and added, “Hana Financial will continue to strive to ensure that internal controls within the group operate effectively.”

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