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Shinhan CEOs get slap on wrist over Lime scandal

Shinhan Financial Group Chairman Cho Yong-byoung and Shinhan Bank CEO Jin Ok-dong (Yonhap)
Shinhan Financial Group Chairman Cho Yong-byoung and Shinhan Bank CEO Jin Ok-dong (Yonhap)

The top executives of Shinhan Financial Group and Shinhan Bank received light sanctions Thursday over the sale of problematic funds structured by hedge fund firm Lime Asset Management. 

A sanctions committee under the market watchdog Financial Supervisory Service handed down an admonition to Shinhan Financial Group Chairman Cho Yong-byoung and a cautionary warning to Shinhan Bank CEO Jin Ok-dong for their lax oversight of the Lime fund misselling. 

The decision was made late Thursday afternoon during a meeting of the FSS’ in-house sanctions committee.

The penalties were somewhat lighter than expected. In February the FSS warned the two executives that they would face much tougher penalties -- namely, a cautionary warning and a reprimand warning -- for failing to adequately monitor the sale of the troubled funds, worth 276.9 billion won ($247 million) combined.

Executives of financial institutions are subject to five levels of administrative penalties if found guilty of misconduct. The lightest penalty is an admonition, and a cautionary warning is one notch higher. Right in the middle of the scale is a reprimand warning, followed by suspension from work and recommendation for dismissal.

A reprimand warning precludes executives from getting new jobs in the finance sector for the next three to five years, although they can retain their current positions.

The market watchdog chose to impose lighter sanctions because Shinhan Bank accepted the authority’s arbitration proposal to compensate the victims of the Lime misselling, according to market observers. 

The lender announced on Wednesday afternoon that it would repay up to 75 percent of the principal invested in Lime Asset Management’s Credit Insured funds, as recommended by the financial dispute settlement committee under the FSS. 

“(Shinhan Bank) respects the FSS’ decision. Putting customers first in the firm’s management operations, the company will promote various measures to protect customers’ rights and interests,” Shinhan Bank said. 

Decisions from the FSS’ sanctions committee are not legally binding, but are subject to the approval of the chief of the policymaking Financial Services Commission after a thorough review by the securities and futures commission, an oversight committee integrated within the FSC in charge of regulating the securities and futures markets. 

Lime Asset, founded in 2012, has been under an FSS probe since July 2019 for having concealed huge losses and inflated investment returns to keep its customer base. It suspended fund redemption worth an estimated 1.6 trillion won, industry data showed. The troubled hedge fund operator admitted last year that the losses incurred by investors in its four troubled funds could exceed 1 trillion won. 

The FSS committee will have to hold a series of meetings later this month to mull punishment for other Lime fund sellers, including the Korea Development Bank and Busan Bank. As early as the second quarter of the year it is expected to discuss punitive measures for Hana Bank, which also reportedly missold Lime funds as well as troubled German Heritage funds. 

Meanwhile, the FSS meted out a reprimand warning to Sohn Tae-seung, the incumbent Woori Financial Group chairman and former chief executive of Woori Bank, earlier this month. He was previously informed that he could be suspended from work. 

The lighter punishment was handed down after Woori Bank -- which sold the largest amount of the troubled funds, estimated at 357.7 billion won -- accepted the committee’s arbitration proposal and decided to return 65 billion won to investors who put their money into Lime Asset Management’s trade finance fund after November 2018.

By Choi Jae-hee (cjh@heraldcorp.com)
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