[Digital Today reporter Sangyeop Oh (오상엽)] Prospects have improved for Samsung Securities to win approval to issue commercial paper as the expected level of sanctions over its key branches is likely to be lowered. Meritz Securities, by contrast, is in a situation where it is hard to gauge an approval timetable as a prosecutors' investigation continues.

The financial investment industry said on Tuesday the Financial Services Commission on July 27 held an ad hoc agenda review subcommittee meeting and discussed a sanctions plan related to Samsung Securities' unsound sales practices at key branches.

The FSC is known to have coalesced around lowering the Financial Supervisory Service's proposed sanction of a three-month partial suspension of some branch operations to an institutional warning.

An institutional warning is classified as a severe institutional sanction, but in itself it does not qualify as a sanction that restricts a licence for short-term financial business. Under current Capital Markets Act rules, the institutional sanctions that affect the social credibility requirement for a short-term financial business licence are those at or above a partial suspension of operations.

The industry believes that, barring surprises, the sanctions plan for Samsung Securities is likely to be approved at the FSC's regular meeting on July 31. Taking into account the FSC's August hiatus, the licence agenda could be tabled as early as the regular meeting on Sept. 9, according to the outlook.

Samsung Securities last year was found to have engaged in unsound sales practices, including poor management of recordings and supporting documents and loss compensation, during an FSS inspection of key branches serving ultra-high-net-worth clients.

The FSC's Securities and Futures Commission on April 8 reviewed a conditional plan to proceed with approval if the sanctions outcome did not undermine the social credibility requirement.

The FSC's agenda subcommittee also discussed the licence plan the next day, but after the FSS submitted its sanctions plan for the key branches, the FSC decided to finalise the level of sanctions before the licence.

After that, the FSC held ad hoc agenda subcommittee meetings in June and July to review the violations and the level of sanctions. It was reported that the commission coalesced around adjusting it to an institutional warning on the judgment that severe sanctions were needed for the unsound sales practices but restricting entry into the commercial paper business would be excessive.

Unlike Samsung Securities, Meritz Securities has not even had its commercial paper licence agenda tabled at the Securities and Futures Commission. Meritz Securities applied for approval in July last year and went through an external evaluation committee review and an on-site inspection, but the subsequent process has effectively stopped.

A key variable is suspected unfair trading related to E-hwa Electric's bond with warrants (BW). Prosecutors are investigating allegations that Meritz Securities exercised BW rights and sold shares using non-public information before E-hwa Electric was suspended from trading in 2023.

Also under investigation are allegations that employees used non-public information before Meritz Financial Group in November 2022 announced a comprehensive share swap to make Meritz Fire & Marine Insurance and Meritz Securities wholly owned subsidiaries.

The Homeplus situation also remains an additional burden for Meritz Financial Group. Its affiliates in May 2024 lent Homeplus about 1.3 trillion won and secured 62 stores as collateral. Senior secured trust rehabilitation claims held by Meritz Securities total about 660.1 billion won in principal and interest combined.

Meritz Securities, Meritz Fire and Meritz Capital decided this month to provide Homeplus with 200 billion won in emergency operating funds (DIP). The Seoul Bankruptcy Court on July 21 accepted Homeplus' immediate appeal and reversed a decision issued three days earlier to terminate rehabilitation proceedings.

The industry view is that the Homeplus issue could act as an additional qualitative evaluation burden in terms of the soundness and internal control management of Meritz Financial Group affiliates.

A Samsung Securities official said, "We have not yet received any finalised details regarding the level of sanctions," adding, "We need to watch the outcome of the FSC's regular meeting."