Chairman Sohn Tae-seung of Woori Financial Group and his staffers attend a ceremony to deliver “Woori Hope Boxes” of gifts to the needy neighbors in time for the Lunar New Year holiday at Woori Bank headquarters in Sogong-ro, Seoul, on Jan. 12. (Photo: Woori Financial Group)

The board of directors of Woori Financial Group and the trade union of Woori Bank came down in support of the retention of Chairman Sohn Tae-seung even though regulatory authorities imposed sanctions against the chairman for misspelling derivatives-linked funds.

The board of directors of Woori Financial Group decided to retain Chairman Sohn Tae-seung despite the sanctions.

That means that the board of directors and the trade union maintained that the financial group’s current regime, which centered around Chairman Sohn, remains intact.

The move by the board and the trade union may be construed as worry that if Chairman Sohn steps down, internal strife might ensue over the group’s election as the new chairman.

The board of directors of Woori Financial Group said in a meeting on Feb. 6 that there was no reason to remove Sohn. That means approving Chairman Sohn’s reelection will be determined at a regular shareholders’ meeting slated for next month..

The board did not comment on Woori Financial Group’s initiating litigation against the Financial Supervisory Service (FSS)’s decision to sanction Woori Financial Group and Chairman Sohn.

The board said a process of handling the financial institution by the Financial Services Commission (FSC) has yet to be concluded, and it was not appropriate to voice opinions since sanctions against the related person had not yet notified officially.

Accordingly, whether Chairman Sohn would be retained is expected to be discussed again when the final outcome of sanctioning him by the FSC will be notified early next month.

FSS finalized its decision on Feb. 3 to impose one of its heaviest sanctions for the lender’s mis-selling of derivatives-linked funds that incurred huge losses for investors.

The financial Group and Chairman Sohn will be banned from working in the financial sector for three to five years – even though the current term can be completed.

Originally, the board planned to discuss legal actions, including the filing of an administrative litigation suit, while formalizing its approval of Chairman Sohn’s reelection.

The group believed that it has the chance of winning against legal actions against FSS’s sanctions. Financial community sources said chances are high that if an injection against the legality of the sanctions is filed and an administrative litigation case follows suit, FSS’s sanctions would be revoked.

The financial group disputed the interpretation of the Article 24 of the Act on Financial Governance, requiring financial institutions to establish guidelines and procedures - an internal control system that makes their executives and staff it obligatory to implement their duties.

Article 35 of the act stipulates that in the case standards and related duties of the internal control system are not fulfilled in violation of the Article 24, steps to punish executives and staff can be taken.

The key contention lies with the interpretation of Woori’s misspelling of derivatives-related funds in violation of the Article 24 of the act.

Woori Financial Group argued that the article stipulates the establishment of guidelines on internal control, but punishing the CEO, citing insufficient internal control, was not in compliance of the legality of the article.

On the other hand, FSS said the latest sanctions were based on the insufficient establishment of guidelines on internal control, not insufficient internal control. FSS said the CEO’s failure to establish internal control guidelines properly incurred the financial institution’s misspelling of derivatives-linked funds.

Hana Financial Group Vice Chairman Ham Young-joo was also reprimanded by the FSS with the same sanctions to Woori Financial Group Chairman Sohn.

Woori Bank and Hana Bank were among key sellers of Lime Asset Management’s derivatives-linked funds, which are now frozen after incurring huge financial losses to investors.

Meanwhile, a committee of recommending the group’s executives selected President Kwon Kwang-suk of Community Credit Cooperatives as the final candidate to be the next president of Woori Bank.

President Kown was weighed in along with Kim Jung-ki, head of Woori Bank’s division, and CEO Lee Dong-eyon of Woori FIS as candidates.