Hamyungju, Chairman of Hana Financial Group, "DLF Heavy Sanctions Canceled"... Authorities "Reviewing Whether to Appeal" (Comprehensive Report 2)

The Court Overturns the First Trial, Recognizes Two Disciplinary Grounds
Hana Financial Group "Efforts to Ensure Effective Internal Controls"
Chairman Ham's Term Expires in March Next Year

Ham Young-joo, Chairman of Hana Financial Group, has been judged by the court that the severe disciplinary action imposed by financial authorities over losses from overseas interest rate-linked derivative-linked funds (DLF) was excessive. With the first trial verdict overturned, Chairman Ham has gained time to reorganize ahead of the expiration of his term in March next year. The financial authorities plan to carefully review the ruling and decide on whether to appeal.

The Seoul High Court Administrative Division 9-3 (Presiding Judges Cho Chan-young, Kim Mu-shin, Kim Seung-joo) on the 29th overturned the original ruling that dismissed Ham’s lawsuit against the Financial Services Commission and the Financial Supervisory Service chief seeking cancellation of business suspension and other sanctions, ruling in favor of Ham. 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 Seoul High Court acknowledged that “Ham, as the ultimate supervisor, bears responsibility,” but judged that “unlike the first trial, only some disciplinary reasons are deemed valid, so the defendant side must set a new disciplinary level.” This means that since only part of the obligation to establish internal control standards related to incomplete sales was recognized, a disciplinary measure lower than the existing one is appropriate.

The court recognized only 2 out of 10 disciplinary reasons related to the ‘violation of the obligation to establish internal control standards.’ The first trial had recognized 7. The disciplinary reasons accepted 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 suitability rating results with customers. The remaining reasons were considered either difficult to view as violations of the obligation to establish internal control standards due to lack of clarity and foreseeability, or as violations of the obligation to comply with internal control standards.

However, unlike the first trial, the court actively recognized Hana Bank’s obstruction of inspection. The second trial court ruled that Hana Bank obstructed the Financial Supervisory Service’s work and interfered with inspection duties by deleting self-inspection materials on incomplete sales, failing to report financial accidents, and submitting inspection materials falsely and with delay.

The court also acknowledged, as in the first trial, that Hana Bank neglected its investor protection duties, causing incomplete sales. Private bankers (PBs) were negligent in providing product guidance, leading to incomplete sales. The court judged, “Hana Bank provided information on DLF’s profits and risks that lost balance,” and “PBs emphasized only the absence of loss risk without giving sufficient explanations to customers, causing a widespread incomplete sales incident,” dismissing Hana Bank’s appeal to the Financial Services Commission.

DLF is a fund 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 sharply declined, principal losses occurred in DLS based on U.S., U.K., and German bond yields and the DLFs investing in them, sparking controversy over incomplete sales by financial companies.

At some Hana Bank branches, it was reported that from July 2018 to May 2019, the investment suitability ratings of general investors were arbitrarily upgraded to ‘aggressive investment type’ and entered into the system, causing controversy. It was also found that ‘signatures’ were not obtained when selling DLF products, a procedure confirming that investors were explained about the product contents and risks.

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 DLF. Ham, then Hana Bank president, was also severely disciplined (a warning with reprimand) for inadequate management and supervision. Severe disciplinary actions such as warnings with reprimand or higher restrict reappointment and employment in the financial sector.

Ham and Hana Bank immediately filed an administrative lawsuit seeking cancellation of the disciplinary action but lost in the first trial in March 2022. The court judged that all 886 problematic fund accounts (approximately 183.7 billion KRW in subscription amount) were sold without proper explanation to investors or consideration of investor suitability. The court stated, “The scale of losses from incomplete sales is enormous, and the plaintiffs’ disregard for investor protection duties while pursuing corporate profits betrays the bank’s public nature, safety, trust, and integrity,” adding, “Executives need to bear corresponding responsibility.”

With the verdict overturned in the second trial, Chairman Ham has gained time to reorganize about a year before his term expires. Ham, who took office in 2022, has a term until March next year. However, if financial authorities file an appeal to the Supreme Court disagreeing with the appellate court’s decision, the possibility of reappointment remains uncertain. Previously, financial authorities appealed to the Supreme Court after losing both the first and second trials in the DLF disciplinary cancellation lawsuit against Sohn Tae-seung, former chairman of Woori Financial Group, in August 2022.

Regarding the ruling, Hana Financial Group responded, “We will take this case as another opportunity to consider the consumer’s perspective,” adding, “Hana Financial will continue to strive to ensure effective internal controls within the group.” The Financial Services Commission and the Financial Supervisory Service stated, “We respect the second trial court’s ruling and will carefully review the judgment to decide on whether to appeal and other future positions.”

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