South Korea’s banking groups accused of misselling high-risk derivative products were treading on thin ice Tuesday, as they seek the best course of action to protect their governance against the financial watchdog’s decision to penalize top executives.

Financial Supervisory Service Gov. Yoon Suk-heun on Monday gave his final seal of approval to the sanctions committee’s decision to impose “reprimands and warnings” on Woori Financial Group Chairman and Woori Bank CEO Sohn Tae-seung and Hana Financial Group Vice Chairman Ham Young-joo.

Anyone subject to such warnings is barred from working in the financial sector for three to five years -- although the current term can be completed.

Yoon also approved the committee’s decision to warn Hana Bank’s current CEO Ji Sung-kyu with a less severe sanction, and fined each lender around 2.5 billion won ($2.1 million). The committee’s proposal to order the lenders’ partial suspension of its private equity fund businesses for six months was also approved.

The reprimands and warnings will officially go into effect once related notices are delivered to the subjects, expected to be take place in early March, according to the Financial Services Commission.

The FSC’s approval finalizes and gives legal weight to the FSS sanctions committee’s decision last week.

At Woori Financial’s regular board meeting scheduled Friday, Sohn is likely to decide whether he will abide by the financial authorities’ rulings without further protest or take legal action against the sanctions in an apparent bid to delay or annul its effect.

If Sohn chooses to swiftly accept the sanctions, he is expected to announce his resignation as the chief of Woori Financial and Woori Bank before the holding group’s shareholders meeting slated for March.

Woori Financial’s external board members reappointed Sohn as chairman in December and said the decision will be finalized at the shareholders meeting. His term as CEO of Woori Bank would end once the reappointment is finalized.

Sohn would also be barred from pursuing a career in the financial industry for at least three years.

Woori Financial is likely to suffer from a leadership vacuum in Sohn’s absence despite a contingency plan announced by the board last month to appoint one of its other top executives as acting chairman.

It would also further slow down the appointment of the new CEO of its flagship banking unit. The group has delayed the appointment multiple times since early January in a move viewed as a timeframe adjustment around the financial authorities’ sanctions announcements.

But if Sohn chooses to keep his post, he would have to file a legal injunction against the financial authorities’ decisions.

This could buy him enough time to commence his second term after the shareholders meeting, and allow him to complete his term under the current law. The Woori Financial board and its labor union have expressed support for Sohn multiple times, which is expected to make his reappointment smoother, within the company.

The lawsuit, however, is likely to further sour Woori Financial’s relationship with the financial authorities, putting the holding group at the risk of receiving heavier punishments with its other cases under watchdog scrutiny.

Woori Bank and Hana Bank were among key sales channels of Lime Asset Management’s now-frozen derivative-linked funds, which inflicted huge financial damages on investors last year. The FSS is currently investigating the case, in which the local fund operator has frozen up to nearly 2 trillion won of its portfolio, due to liquidity issues and its failure to hedge risks.

Meanwhile, Hana Financial is expected to take a relatively soft approach toward the financial authorities’ sanctions as Ham has recently taken up his position as vice chairman.

By Jung Min-kyung (mkjung@heraldcorp.com)