['Geumpia' Cartel] ① 1 in 10 Becomes Financial Company Auditor... The Reason Behind 'Internal Control Gaps'

Woori and Hana Bank Appoint New Standing Auditors from Financial Supervisory Service
22 Former Regulators Rehired as Auditors from 2018 to 2022
Concerns Over Regulatory Lobbying and Supervisory 'Shield'

The direct transition of 'supervisors' to supervised institutions continues. This refers to cases where individuals retire from the Financial Services Commission (FSC) or the Financial Supervisory Service (FSS) and then get re-employed by private financial companies such as banks and securities firms. When the new position is that of an auditor, there is a potential conflict of interest. Critics point out that those who are assigned roles in accounting, auditing, and internal control based on their experience and expertise in financial supervision often end up merely serving as lobbying channels for the authorities or as 'shields' against external oversight. Recent incidents of internal control failures in the financial sector are interpreted as being closely related to this practice.

According to data titled '2018?2022 Reemployment Review Status of Retirees from FSS and FSC' received by Asia Economy on the 27th from the office of Choi Seung-jae, a member of the National Assembly's Political Affairs Committee from the People Power Party, among 146 retirees from the two institutions over five years, 22 (15%) took positions as auditors (full-time auditors, chief auditors, audit committee members, etc.) at private financial companies. This figure only includes those who were reemployed within three years after retirement and underwent employment review by the Government Ethics Committee. The number is expected to increase if retirees who did not undergo review after more than three years are included.

These individuals have taken positions at banks including Jeonbuk Bank, as well as at SBI, OK, JT Chin-ae, Hana, Shinhan, Eugene, KB Savings Bank, DS Investment, Citigroup Global Markets, Eugene Investment, and Hi Investment & Securities. By origin, 20 out of 125 from the FSS and 2 out of 21 from the FSC took such roles, with the FSS accounting for a particularly high proportion. This is because many auditors’ counterparts are inspectors and supervisors from the FSS.

Several full-time auditors at major commercial banks whose terms expire this month are already being filled by former FSS officials. Yang Hyun-geun, former Deputy Director of the FSS (in charge of banks) and former Vice President of Korea Securities Finance Corporation, has been nominated as the successor to Jang Byung-yong, full-time auditor at Woori Bank (former FSS director). Hana Bank has also selected Min Byung-jin, former Deputy Director of the FSS (in charge of planning and management), as a candidate to succeed Cho Sung-yeol, full-time auditor (former FSS director). They began their terms after passing the regular shareholders' meeting on the 24th. Additionally, former FSS officials currently serve as full-time auditors at KB Kookmin Bank, Shinhan Bank, NH Nonghyup Bank, and regional banks including Busan, Gyeongnam, Daegu, Jeonbuk, Gwangju, and Jeju Banks. Full-time auditors at financial companies are considered the second-in-command of the organization, responsible for overall accounting, auditing, and internal control.

The issue lies in the potential conflict of interest. Financial companies cite long experience and expertise in financial supervision as reasons for appointing former regulators, but auditors who maintain close personal networks with the authorities tend to block regulatory oversight, preventing objective supervision. There are also concerns about whether they can properly check management and conduct internal monitoring while receiving multi-million won high salaries.

A representative case is the Woori Bank embezzlement scandal involving 70 billion won that occurred between 2012 and 2018. The FSS conducted 11 comprehensive and partial inspections of Woori Bank, and the bank itself carried out 6 million internal audits during that period, but failed to uncover employee misconduct. A banking industry insider said, "Officially, full-time auditors conduct internal audits within the bank, but in reality, they are closer to positions that facilitate smooth communication with higher authorities that sanction financial companies."