Shinhan told to repay its Lime investors

Investors who lost money in the Lime Asset Management scandal demand compensation in front of Shinhan Bank's main branch in central Seoul in March 2020. [YONHAP]

Shinhan Bank has been ordered to repay up to 75 percent of investments it sold in Lime Asset Management's Credit Insured funds.

The decision was announced by the Financial Dispute Settlement Committee of the Financial Supervisory Service (FSS) on Tuesday.

Lime, once the largest hedge fund in Korea, halted withdrawals from some of the funds it managed in late 2019. Over 1.6 trillion won ($1.4 billion) of Lime funds have been frozen since December 2019, according to data from the FSS.

The FSS has been mediating disputes between financial institutions that marketed the funds and investors.

For Shinhan Bank, the committee picked two cases, which can be used as precedents for other disputes.

The Financial Dispute Settlement Committee ordered the bank to reimburse 75 percent of an investment in Lime's Credit Insured fund by an individual investor who specifically asked to subscribe to a principal-protected financial product. The bank recommended the Lime fund without fully explaining the risks, the committee said.

The committee also ordered the bank to reimburse 69 percent of an investments in a Lime fund made by a small company. The bank described the fund as being safe, with no risk to the principal. It also claimed the minimum investment in the fund was 510 million won, when it was actually 300 million won.

The committee advised Shinhan to settle other disputes with Lime investors at reimbursement rates of 40 to 80 percent.

The decision by the FSS committee is not legally binding. Shinhan Bank has 20 days to decide whether to accept the terms laid down by the committee.

Shinhan Bank is responsible for 273.9 billion won of frozen investment in Lime's Credit Insured fund, according to the FSS.

The bank is likely to make a decision before an FSS sanctions review committee meeting scheduled for Thursday. The committee will decide on punishment for Shinhan Bank CEO Jin Ok-dong for mis-selling of funds.

Efforts to reimburse investors could lead to a lighter punishment for Jin.

Last month, Woori Bank accepted an FSS guideline to repay between 40 and 80 percent of investments by investors in Lime funds. In an FSS sanctions committee meeting that followed, Woori Financial Group Chairman Son Tae-seung received a "reprimand warning," a step lighter than the "suspension of duty" he was originally notified of by the FSS.

A reprimand warning is the third highest level of punishment out of five. Suspension of duty is the fourth highest and recommendation of dismissal is the fifth.

In a prior notice by the FSS to Shinhan Bank, the regulator said Jin would be subject to a reprimand warning. The warning bars Jin from holding positions at financial companies for three years, although current terms can be completed.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]