Financial Company Monetary Incidents Reach 92.7 Billion Won in First Half of This Year, More Than Quadruple Increase... Internal Control Improvement Tasks Established

Financial Supervisory Service Prepares 20 Internal Control Improvement Tasks Across 4 Areas to Prevent Recurrence of Financial Accidents
Improvement of Personnel Management System Including Rotation, Ordered Leave, and Job Separation

[Asia Economy Reporter Song Hwajeong] In the first half of this year, financial incidents in the banking and small-to-medium low-income sectors increased more than fourfold compared to the same period last year. In response, the Financial Supervisory Service (FSS) and the financial sector have decided to establish and implement internal control improvement tasks to prevent financial accidents.

According to the FSS on the 3rd, during the first half of this year, there were 40 financial incidents amounting to 92.7 billion KRW in the banking and small-to-medium low-income sectors. While the number of incidents decreased by one compared to the same period last year, the amount involved surged by 310.2%. The amount of incidents increased from 44.4 billion KRW in 2019 to 55.3 billion KRW in 2020, then decreased to 50 billion KRW in 2021, but this year alone exceeded 90 billion KRW in the first half.

By type, embezzlement incidents accounted for 28 cases and 74.7 billion KRW, representing the majority of financial incidents in the first half (80.6% by amount). By sector, both banking and small-to-medium low-income sectors had a similar number of incidents compared to the same period last year, but the amount involved increased by 53.6 billion KRW to 64 billion KRW in banking and by 16.5 billion KRW to 28.7 billion KRW in the small-to-medium low-income sector.

The FSS is operating a task force (TF) with the industry to improve internal controls to prevent recurrence of financial accidents, preparing 20 improvement tasks across four areas to ensure the internal control functions of financial companies operate more effectively.

The four areas are ▲Strengthening control functions in vulnerable areas (Control) ▲Enhancing financial companies' internal control capabilities (Capability) ▲Establishing a sound internal control culture (Culture) ▲Expanding supervisory functions for accident prevention (Supervision).

To strengthen control functions in vulnerable areas, personnel management systems will be improved by implementing job rotation, mandatory leave systems, and job separation for employees at risk of incidents, and enhancing mutual checks and accident prevention functions such as strengthening terminal access control. For banks, the job rotation system will be improved by managing target ratios for long-term employees, strengthening exception approval procedures, and setting limits on exception work periods. Savings banks plan to introduce the principle of job rotation through internal regulations and establish exception approval procedures. Mutual finance institutions will strengthen operation cycles and revise exception criteria.

The mandatory leave system will expand its target and strengthen detailed operational standards such as unannounced leave orders. The target will be expanded not only to risky job positions but also to long-term employees in the same department, with mandatory leave generally enforced for risky positions. The order method will limit the time for entering leave orders into the system to allow for unannounced orders.

Additionally, controls over vulnerable work processes identified in recent financial incidents in each sector will be immediately strengthened, such as preventing forgery of project financing (PF) loan withdrawal requests (savings banks and credit finance companies) and strengthening joint fund management by creditor groups (banks).

To enhance the effectiveness of internal audits, conflict of interest prevention devices will be established, and financial companies’ internal control capabilities will be strengthened by expanding personnel and expertise in compliance monitoring organizations. Furthermore, a self-diagnosis system will be introduced for small and medium-sized credit finance companies with total assets under 2 trillion KRW, and the criteria for mutual finance cooperatives required to establish audit offices will be expanded. The self-diagnosis system selects risk-vulnerable areas as self-diagnosis tasks and requires companies to check and improve them based on a checklist.

To establish a sound internal control culture, whistleblower reward criteria will be expanded, standard financial accident prevention guidelines will be prepared for each sector, and accident prevention education and campaigns will be expanded.

The FSS plans to strengthen continuous monitoring and accident inspections of financial companies’ internal control operations, expand the weight of internal control in management evaluations, and specify evaluation criteria. For mutual finance cooperatives with weak internal control systems, the central association will revise the internal control evaluation model for cooperatives to strengthen guidance and management for accident prevention.

The FSS will promptly implement tasks that can be immediately enforced through revisions of financial companies’ internal regulations within this year to prevent the spread of financial accidents. Other tasks will be implemented gradually considering sector-specific circumstances such as organizational and personnel adjustments and IT system integration. An FSS official stated, "We will prepare detailed implementation plans for each improvement task to ensure they are carried out without delay according to the characteristics of each sector and will monitor the progress."