FSS decides not to punish KB chiefs

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FSS decides not to punish KB chiefs

KB Financial Group’s share price went up 1.65 percent yesterday from the previous day to close at 4,000 won ($3.92) after the unsettling risk of a possible vacancy in the group’s top management was solved.

The Financial Supervisory Service (FSS) late on Thursday ended its investigation into a dispute between KB Financial Group Chairman Lim Yong-rok and its flagship KB Kookmin Bank’s President Lee Kun-ho by letting them off the hook with a light warning.

The decision stood in contrast to what many in the financial industry had expected, especially since the FSS previously said it would hit the two with a heavy penalty.

Instead, Lim and Lee were given what the FSS calls an “institutional warning,” which is the second-lowest penalty that the financial authority can issue.

The two had been under review by the FSS’s Sanctions Review Committee, which advises FSS governor Choi Soo-hyun, since June 26.

The committee looked into three major issues. One was the conflict between Lim and Lee over the adoption of a new computer system, which started earlier this year. The second was illicit business acts perpetrated by the bank’s employees including embezzlement of 9 billion won from forged housing bonds. And the last issue was illegal loan extensions issued by its Tokyo branch from the mid-2000s until 2012.

But the committee’s main goal was to get to the bottom of the conflict between the chairman and president.

However, it decided on a light penalty since the financial group still hasn’t decided whether it will continue to use an IBM mainframe or will switch to UNIX, and because the conflict has not financially harmed the company.

The FSS also said it found no evidence of an illegal connection between either of the computer program providers and the top management.

“We thought that although both men have caused public distress with their own feud and harmed the bank’s public reputation, the majority on the committee thought that handing down a heavy penalty was too severe,” said a committee official, who requested anonymity.

The conflict between Lim and Lee started when the financial group decided to change its computing system from IBM to UNIX in April. President Lee and the bank’s auditor Jung Byung-ki opposed the board of directors’ decision. Lee in May requested that the FSS conduct a special investigation on the issue.

The investigation team at the FSS recently warned Chairman Lim that he would face a heavy penalty after having found that the holding company, in the process of making its decision on which operating system to adopt, had influenced the consulting report and tampered with information. Even the officials in charge of the bank’s operating system made changes to the report in accordance with orders made by KB Financial Group. The FSS’s investigators concluded that the actions were illegal.

But the sanctions committee toned down initial findings, saying that companies always changed reports in the process of decision-making.

In regard to the illegal Tokyo branch loans, although President Lee was in charge of risk management, he was deemed not responsible since they had occurred at an overseas branch.

After Thursday’s decision, the chairman and the president decided to reconcile their differences during a one-night temple stay at a Buddhist temple along with other top executives from the holding company and bank.

It is their first public get-together since they began arguing over the operating system.

By lee ho-jeong [ojlee82@joongang.co.kr]
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