Updated September. 05, 2014 04:00
The Financial Supervisory Service (FSS) has decided to upgrade the level of punishment against the chairman of the KB Financial Group and the president of its subsidiary Kookmin Bank for management failures over an expensive computer system change. The financial watchdog`s disciplinary review committee consisting mainly of outside officials had decided on light punishments against the two on Aug. 21. FSS Governor Choi Soo-hyun, however, rejected the decision and upgraded the level of punishment, which is the first time that an FSS chief overturned the disciplinary panel`s decision.
A heavy punishment means that executives at financial companies who receive a heavy punishment are expelled from the financial industry, as they are banned from serving a new term and getting a job at another financial institution for the following three to five years. After the tough punishments were announced, Kookmin Bank President Lee Kun-ho has stepped down from his post, and KB Financial Chairman Lim Young-rok is mulling a similar move.
The FSS announced Thursday the decision on the upgraded disciplinary action against the two, who were involved in a feud over an expensive computer system change for the bank. The financial watchdog has the authority to decide on the level of punishment against Lee. Under a local law on financial holding companies, however, the action against the KB Financial Group chairman will be concluded at a Financial Services Commission meeting to be held in late September.
The FSS governor held an unusual media briefing on the actions against the KB Financial Group and Kookmin Bank, noting that the KB Financial Group had had a series of major financial incidents due to a total lack of internal control. "In particular, serious issues of internal control equivalent to criminal acts have been disclosed in the process of the computer system change," he said.
The FSS informed the two bankers of heavy disciplinary actions in early June, based on the result of its inspection of the computer system change. However, its disciplinary review committee, which advises the FSS governor, downgraded to the actions to light punishment. The FSS chief, who has the authority to make a final decision, had contemplated on whether to accept the proposal for lighter punishment over the last two weeks.
The latest decision will likely cause serious aftereffects including the replacement of the KB Financial Group`s management. The disciplinary actions do not effectively force them to resign but are considered an "exit" notice by the local financial industry.
If Lim also resigns, the KB Financial Group will face an unprecedented vacuum in its top management. Some in the financial industry believe that it is possible for Lim to refuse to accept the FSS`s decision and request a review or file a lawsuit.