The Financial Services Commission raised the sanction for feud-ridden KB Financial Group chairman Lim Young-rok to "suspension of duty," a notch above the "reprimand warning" suggested by the Financial Supervisory Service.
The measure put extra pressure on Lim, who repeatedly defied the sanction and pledged to retain his position despite resignation calls.
On Friday afternoon, the FSC announced the stiffened penalty ― the second-heaviest in the five-step sanction system ― after a general meeting in which Lim appeared to vindicate himself.
"We have grasped the gist (of the heavy sanction against Lim) and will deliberate the matter very closely," FSC chairman Shin Je-yoon told reporters earlier on Friday on the way to work, displaying an uncompromising stance.
Lim, however, still showed no sign of yielding to the watchdog's pressure.
"I will continue to work together with our employees in order to stabilize the organisation and normalize the management," Lim told reporters while leaving the FSC building after making his testimony. He thereby made it clear that he would not step down voluntarily, regardless of the level of punishment.
The harder-than-expected sanction is thus regarded as a move by the FSC to push the chairman out of his post.
Lim's suspension is likely to cause a leadership vacuum in the group, especially as KB Kookmin Bank president Lee Kun-ho offered his resignation earlier, after being handed the FSS sanction last week.
Both top officials were held responsible for mismanagement, an issue triggered by a dispute about replacing the bank's main computing system, as well as a series of financial misdeeds such as loan fraud and a customer information leak.
"I will do my best to vindicate myself and reveal the truth," Lim said before attending the FSC meeting.
The unbending chairman had held an urgent press briefing on Wednesday, in which he bluntly blamed FSS Gov. Choi Soo-hyun for arbitrarily ignoring his disciplinary committee's opinion and stiffening the penalty.
In his support, the group's presidential board issued a statement on Friday morning, just hours before the FSC meeting.
"The urgent priority is to pull (KB Financial Group) together under chairman Lim's leadership," it said.
While the board apologised for causing management disorder, they also underlined that the disputed replacement of the computing system was an internal issue and thus not subject to sanctions by the financial authorities.
But the group's labour union, as well as opposition parties, claimed that Lim's resignation is a prerequisite for normalizing the management.
"Lim failed to show responsibility as the head of KB Financial Group and the leader of its 30,000 employees," the union said in a statement.
Union members kicked off a demonstration on Thursday, pledging to continue until Lim steps down.