A Seoul administrative court said the Financial Supervisory Service (FSS) overstretched its authority by penalizing the top executive of banks for mis-selling exotic derivative products, a ruling that can restrict the watchdog’s future punishments on the management of financial institutions.
In a ruling statement revealed Thursday, the Seoul Administrative Court last week accepted the injunction filed by Sohn Tae-sung, chairman of Woori Financial Group, to suspend the financial watchdog’s disciplinary actions against him and another top executive, saying the “right to take such punitive measures lies with the policymaking authority Financial Services Commission (FSC)” and not the FSS, which is a supervisory arm.
Earlier this month, Sohn filed for an injunction against the FSS’s decision to impose a punitive action against Sohn and Hana Financial Group Vice Chairman Ham Young-joo for the mis-selling of derivatives-linked fund (DLF) products that caused massive losses to retail investors last year. Sohn had also filed a separate lawsuit seeking a nullification of the watchdog’s disciplinary actions.
The FSS had both given the top executives of Woori and Hana an official reprimand, classified as the third heaviest in the five-level punishment system, on charges of mis-selling high-risk exotic funds to individuals without fully explaining their risks.
The DLF products were marketed as relatively safe investment vehicles, designed to deliver large profits when interest rates of countries including Germany and Britain stay above a certain level. But the interest rates of the major economies plunged last year in volatile market conditions, leading to losses of over 90 percent.
The FSS sanctions would have barred the executives from working in the financial sector for three years, though they would have been able to finish their current term.
The court’s injunction approval last week allowed Sohn to secure another three-year term at the Woori Financial Group’s annual shareholder meeting on Wednesday.
According to the latest court statement, local laws stipulate that only the FSC has the right to reprimand financial company executives. It adds that the FSS is not authorized to take disciplinary actions on executives other than those working at mutual trust banks.
Observers say the injunction grant can work in Sohn’s favor in the higher court.
By Lee Seung-hoon, Choi Seung-jin and Kim Hyo-jin
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