Hana expresses regret over court's ruling on high-risk DLFs
Hana Financial Group Vice Chairman Ham Young-joo / Courtesy of Hana Financial Group
By Yi Whan-woo
Hana Financial Group Vice Chairman Ham Young-joo lost an administrative suit, Monday, against the Financial Supervisory Service (FSS) which had imposed a reprimand warning on him over the improper selling of high-risk derivative-linked funds (DLFs) by the group's flagship affiliate Hana Bank.
The bank expressed regret over the ruling, saying, “We actively explained the excessive aspect of the FSS' measure on one hand, while fully accepting its compromise plan to compensate affected investors on the other hand.”
“But all of these efforts unfortunately have not been accepted,” it added.
The lender said it will announce further details on its stance regarding the ruling after analyzing the verdict.
Ham and the financial group are widely expected to appeal the ruling, as the vice chairman awaits confirmation to become the group's next chairman during meetings of shareholders and the board of directors scheduled for March 25. Ham was tapped as the sole candidate for the post, Feb. 8.
The Seoul Administrative Court rejected his call to revoke the warning and ruled he was responsible for the bank's lack of internal control and failure to protect retail investors from the potential risks in the DLFs.
“It appears the plaintiff failed to fully carry out his duty to protect investors,” the court said, adding that the mis-selling of the DLFs resulted in massive losses. “The plaintiff therefore should take responsibility corresponding to his title and authority.”
The reprimand is classified as a heavy sanction, and any financial leaders who receive such a sanction are not allowed to extend their terms, nor can they work at other financial institutions for three years.
Ham was the CEO of Hana Bank between July 2018 and May 2019 when several bank branches failed to inform customers of the risks associated with DLFs. DLFs are designed to provide high returns when the interest rates of major economies stay above a certain level, but they ended up incurring massive losses for investors as yields tied to products plunged.
In March 2020, the FSS slapped a reprimand warning on Ham, while fining Hana Bank 16.7 billion won ($13.4 million) plus banning it for six months from attracting investors to put money into privately pooled funds.
Ham filed a suit against the FSS in June 2020, contending that the bank had guidelines on DLFs and it is not justifiable for the FSS to penalize the management for problems that occurred despite the guidelines.
Woori Financial Group Chairman Son Tae-seung won a similar suit in August 2021. He had received a reprimand warning from the FSS in March 2020 for a DLF fiasco concerning Woori Bank.