Financial watchdog defies court ruling to hold financial institutions responsible for failing to protect consumers
Woori Financial Group Chairman Sohn Tae-seung (Yonhap)
The Financial Supervisory Service said Friday it plans to appeal a Seoul court decision last month that nullified the watchdog’s penalty on the current Woori Financial Group chairman, which held him accountable for the misselling of high-risk funds.
The Seoul Administrative Court ruled in favor of Sohn Tae-seung, revoking the heavy “reprimand” imposed upon him by the FSS in January 2020. If the warning had been finalized by the policymaking Financial Services Commission, Sohn would have been allowed to finish his current term as chairman but banned from working in the finance sector for at least three years.
But Woori filed a lawsuit against the FSS and an injunction to suspend the penalty in March 2020, after the watchdog recommended the regulator hand down the penalty. The court then ruled in favor of Sohn, saying there is no legal ground to impose a penalty on a staff member or executive of a financial institution for “a failure to abide by internal control standards, not a failure to establish them.”
Sohn was held responsible for Woori‘s flagship lender Woori Bank’s misselling of derivatives-linked fund products, which caused retail investors to lose money. According to the FSS, Woori Bank sold a total 401.2 billion won ($346.5 million) to some 600 retail investors from August to November 2019, with most of them losing the majority of their principal investments.
The fund products were designed to return large profits when the interest rates of specific countries, including Britain and Germany, stayed above a certain level. Instead, it left investors with heavy losses after interest rates or bond yields in major economies fell.
The FSS’ latest move, reflecting its unwillingness to easily let businesses off the hook for failing to protect consumers, apparently has sent jitters across the financial sector, with a slew of business chiefs now waiting for confirmation from the FSC on their own penalties.
At the moment, company chiefs including former KB Securities co-CEO Yoon Kyung-eun, former Shinhan Investment President Kim Hyung-jin and current Korea Financial Investment Association Chairman Na Jae-chul, who was the chief of Daishin Securities, have been dealt a “suspension,” a tougher penalty than the reprimand, by the FSS for a separate hedge fund scandal involving alleged fraudulent practices by the fund managers.
Civic groups and lawmakers have requested the FSS appeal to the Seoul Administrative Court ruling against Sohn. In a joint statement released Tuesday, 12 ruling Democratic Party of Korea lawmakers strongly requested “the FSS to appeal and receive legal answers.”
By Jung Min-kyung (email@example.com)