Banking Sector Anticipates Reappointment of 'Financial Supervisory Service Alumni Auditors' as Windbreakers

Increased Financial Authority Sanctions and Pressure Including Financial Consumer Protection Act and Private Equity Fund Disciplinary Actions
Essential to Maintain Smooth Communication with Financial Authorities Based on Expertise and Experience

[Asia Economy Reporter Kwangho Lee] The possibility of reappointment is being predicted for incumbent auditors from the Financial Supervisory Service (FSS) at commercial banks whose terms expire in March. This year marks the inaugural year of the Financial Consumer Protection Act (FCPA), and with compensation and disciplinary procedures pending due to the sale of private equity funds such as Lime and Optimus, close cooperation with financial authorities is crucial. In particular, as sanctions and pressure from financial authorities intensify, there is a growing call for their expertise, activities, and experiential knowledge.

Five Incumbent Auditors at Commercial Banks with Terms Expiring in March

According to the FSS electronic disclosure system on the 26th, there are five incumbent auditors from the FSS at commercial banks whose terms expire in March.

They are Lee Ik-jung, auditor at NH Nonghyup Bank (former head of the Special Bank Inspection Bureau), Park Yong-wook, auditor at Jeju Bank (former head of the Consumer Protection General Bureau), Byun Dae-seok, auditor at Daegu Bank (former head of the Special Bank Service Bureau), Song Hyun, auditor at Gwangju Bank (head of the Savings Bank Inspection Bureau), and Jang Hyun-gi, auditor at Busan Bank (former head of the Foreign Exchange Operations Office).

Previously, KB Kookmin Bank and Shinhan Bank reappointed their incumbent auditors, Joo Jae-sung and Heo Chang-eon, whose terms were set to expire at the end of last year. Auditor Joo has served as deputy head of the FSS Banking Division and as CEO of Woori Financial Research Institute, while Auditor Heo is a senior official who has held positions such as deputy head in charge of insurance and president of the Financial Security Institute.

The financial sector views the strong consumer protection stance of financial authorities and ongoing regulatory tightening as reasons to highly anticipate the reappointment of these auditors to ensure smooth communication with the authorities.

A financial industry insider said, "Currently, dispute mediation committees and disciplinary review committees related to private equity funds at banks are scheduled one after another. In the case of disciplinary reviews, depending on the disciplinary outcomes for sitting financial holding company chairpersons and bank presidents, significant changes to governance structures are inevitable. With the full enforcement of the FCPA at the end of next month and ongoing issues such as dividend reduction and profit-sharing system controversies, the trend of appointing incumbent auditors from the FSS is expected to continue." He added, "Those from the FSS have proven expertise in supervision and inspection fields and can be considered verified personnel for performing audit committee duties."

Another insider said, "Banks appointing personnel from the FSS is due to aligned interests. Banks can use FSS alumni as shields to play a protective role against supervision and inspection by financial authorities, enabling smoother operations."

Concerns That It May Hinder Financial Authorities' Work

There are also voices of concern. If such appointments continue and exert influence, they could hinder the work of financial authorities. The savings bank crisis 10 years ago (2011) is a clear example. At that time, retired FSS officials who were re-employed by savings banks were found to have engaged in lobbying and various corrupt practices against the FSS. As a result, the post-retirement employment restrictions, initially applied only to grade 2 or higher officials, were expanded to include grade 4 or higher. To prevent such side effects, it is necessary to increase transparency in the appointment process of incumbent auditors.

A representative from the National Financial Industry Labor Union pointed out, "It is not right from the perspective of social justice for retired financial authorities to be re-employed as senior officials at banks they once supervised." He emphasized, "The appointment process for incumbent auditors should involve open recruitment and increased transparency, and there is also a need to supplement the Public Officials Ethics Act."