ED Punishment over fund fiasco

Banks cannot avoid criticism for mis-selling of Lime funds

The Financial Supervisory Service (FSS) has sent warnings to the top executives of two commercial banks over their companies mis-selling of Lime Asset Management funds. Sohn Tae-seung, the incumbent Woori Financial Group chairman and former CEO of Woori Bank, was informed he could be suspended from his duties. The financial regulator also notified Jin Ok-dong, head of Shinhan Bank, that he may receive a reprimand, which bars executives from getting new jobs in the financial sector for three to five years. Shinhan Financial Group Chairman Cho Yong-byoung was given a cautionary warning, a relatively light penalty.

The rigorous sanctions are understandable, given the gravity of the fund scandal in which Lime suspended the redemption of 1.7 trillion won ($1.5 billion), resulting in massive investor losses. It's natural that the bank executives who failed to execute proper internal controls are subject to harsh punishment. The level of the final penalties to be levied against them will be determined later this month.

The FSS reportedly suspects that Woori Bank continued to sell Lime funds even after sensing signs of insolvency. If so, this is certainly a very serious issue that cannot be compared to “incomplete sales” ― sellers' failure to notify investors of how risky the fund products were.

Woori and Shinhan are reacting angrily to the sanctions, alleging that the FSS is trying to punish top bank executives to shirk responsibility for its poor supervision. Their reactions are understandable, given that the financial authorities created the possibility for the Lime scandal by loosening entry requirements for private equity funds to be asset managers and lowering the minimum investment amount.

Nevertheless, banks cannot avoid criticism for their mishandling of the fund sales. They should do some painful soul-searching for having caused investors huge losses and endeavor to prevent a recurrence of similar “incidents” instead of resorting to litigation. It's long overdue for the country to establish the highest standards of consumer protection in the financial sector, even by imposing harsh punishments.