Establishment of 'Internal Control Management Committee' in Holding Company Board in First Half
Role in Managing and Supervising Internal Control Across All Affiliates... Expanded CEO and Shareholder Responsibility in Case of Second DLF Incident
[Asia Economy Reporter Haeyoung Kwon] Woori Financial Group is set to become the first domestic financial holding company to establish a control tower within its board of directors to manage the internal control functions of all its affiliates. This move aims to prevent a recurrence of incidents like the derivative-linked fund (DLF) and Lime Asset Management scandals, which caused massive losses to investors. In the future, if a second DLF incident occurs within Woori Financial Group’s affiliates, including the bank, the board of directors, i.e., the CEO and shareholders, could be held accountable.
According to financial industry sources on the 14th, Woori Financial Group plans to establish an Internal Control Management Committee within the holding company’s board as early as April.
A Woori Financial Group official stated, "We have decided to create an organization within the board to strengthen the internal control system of Woori Financial Group," adding, "We have completed reporting to the board and plan to introduce the Internal Control Management Committee by the first half of the year at the latest, following additional legal reviews and shareholder meeting approval."
The Internal Control Management Committee will be responsible for internal controls across 11 Woori Financial Group affiliates, including banking, card, securities, trust, and asset management. The internal control management and supervision functions of all affiliates will be consolidated within the board, operating under a matrix system where the holding company and group affiliates collaborate. This means that if an internal control issue arises in one affiliate, responsibility could escalate beyond that affiliate’s management and compliance officer to the holding company’s CEO and shareholders.
For example, if a large-scale loss incident like last year’s DLF case recurs, the holding company’s board could be held responsible for the bank’s inadequate internal controls. Financial regulators may hold Woori Financial Group Chairman Sohn Tae-seung, who oversees the group’s overall internal controls, and shareholders accountable for any internal control failures. Woori Financial Group is currently in the stage of drafting detailed plans through additional legal reviews.
Woori Financial Group’s initiative to build a group-wide internal control system was largely influenced by the DLF incident. The issue expanded beyond employees’ incomplete sales practices to problems within the bank’s internal control system, prompting the group to devise self-rescue measures to prevent recurrence. The Financial Supervisory Service (FSS) reportedly delayed approval of Woori Financial’s acquisition of the international asset trust subsidiary due to the DLF incident last year, granting approval only at the end of the year after the group presented plans to strengthen internal controls. The FSS has consistently emphasized that financial company boards must bear ultimate responsibility for internal controls and proactively establish and operate internal control systems.
Overseas regulators are also increasingly emphasizing the role of boards of directors in financial companies’ internal controls. Wells Fargo was accused of opening a large number of fake accounts without customer consent between 2011 and 2016. Financial authorities imposed hefty fines after extensive investigations, and Wells Fargo responded by replacing the board chairman to manage the crisis. There were even calls for a complete board overhaul.
Within the financial sector, attention is focused on whether Woori Financial Group’s Internal Control Management Committee model will spread to other financial holding companies. Major financial groups like Shinhan Financial Group and KB Financial Group are expanding matrix systems that consolidate the work of holding companies and affiliates to strengthen cooperation, but internal control functions remain managed at the individual company level. However, some speculate that Woori Financial, which had appeared to clash with regulators over Chairman Sohn’s reappointment, may have taken a step back by adopting a system that strengthens CEO and board accountability in cases of internal control deficiencies.
A senior official at the Financial Supervisory Service said, "It is a global standard for the board of directors to oversee internal controls in financial companies," adding, "It is desirable for domestic financial companies to have their boards take the lead in changing organizational culture and directly managing internal controls."
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