[Current Status of Internal Control]② Embezzlement After 15 Years of Service... Long-Term Employment in Specialized Fields 'Widely Allowed'

Financial Supervisory Service Allows Long-Term Employment in 'Corporate Finance, Foreign Exchange & Derivatives Operations'
"Gyeongnam & Woori Bank Employees Embezzled After Over 10 Years in Same Role"
Wide Scope for Long-Term Employment Allowed
Need to Revise and Implement Rotational Work System

'399 → 6 (Woori Bank), 1681 → 52 (Shinhan Bank), 2295 → 842 (Kookmin Bank), 1466 → 702 (Hana Bank)'

These are the numbers of long-term employees by bank, recorded at the end of last year and as of July this year. Within just half a year, the figures sharply declined by as little as 52% and as much as 98%. This can be seen from the 'Annual Status of Long-term Employees in the Same Job (Department)' received on the 21st by the office of National Assembly member Kim Hee-gon, a member of the National Assembly's Financial Services Committee, from the Financial Supervisory Service (FSS).

On the surface, this looks desirable, but the reality is different. The FSS excluded employees in key roles from the long-term employment application. As a result, the numbers appear to have decreased due to a significant 'optical illusion' effect.

Originally More, but an 'Optical Illusion' of Decreased Long-term Employees

Long-term employment is one of the most important parts of internal control measures. The recent unprecedented embezzlement scandals all originated from long-term employment. This includes the 298.8 billion KRW project financing (PF) loan embezzlement incident at Gyeongnam Bank. The perpetrator was able to do this because they worked in the investment finance department for 15 years. The 70 billion KRW embezzlement incident at Woori Bank is similar. The employee had worked in the corporate improvement department for 10 years.

The FSS has also worked to prevent accidents caused by long-term employment. A representative example is the 'Model Code of Internal Control Related to Personnel of the Korea Federation of Banks,' created at the end of last year and applied from this year. Until last year, each bank had different criteria for long-term employees, causing inconsistency. Therefore, a common standard was established for management.

The main principle is to prevent long-term employment, but the 'exemption' clause is controversial. In particular, allowing long-term employment for jobs requiring high expertise is problematic. Due to this clause, employees in fields such as 'corporate finance, IT, foreign exchange & derivatives operations, risk management, legal affairs, accounting, asset management (PB), and corporate RM' are allowed to have long-term employment without any restrictions.

Applying this to the recent Gyeongnam Bank embezzlement case, the employee's role was 'corporate finance,' so they were not subject to rotation. This is because credit provision, investment, and funding support for project businesses are included in corporate finance.

Assemblyman Kim Hee-gon said, "Because many employees in key roles were excluded from long-term employment restrictions, an optical illusion occurred where the number of long-term employees at the four major banks suddenly appeared to have drastically decreased." He added, "Since these are key roles with potential for incidents, measures are needed to prevent employees from staying in the same position for too long."

Limits of Measures like Mandatory Leave and Job Separation

The FSS states that this measure was unavoidable because banks have a limited number of personnel with expertise. An FSS official explained, "There are professionals hired as contract workers in fields requiring expertise, and these areas also compete with other industries like securities firms. If these employees were uniformly rotated, it would be difficult for banks to operate, so this decision was made in consultation with the financial sector."

He continued, "Employees exempted from long-term employment can be managed through other control measures such as mandatory leave or job separation." He added, "However, there are pros and cons, so the scope of exemptions needs to be reconsidered in the future." The FSS aims to reduce the proportion of long-term employees to within 5% of those subject to rotation or fewer than 50 employees.

A real estate project financing loan embezzlement incident involving approximately 56 billion KRW occurred at BNK Gyeongnam Bank. The photo shows a BNK Gyeongnam Bank branch in downtown Seoul on the 3rd. Photo by Jinhyung Kang aymsdream@

Even in Specialized Fields, Rotation is Needed for Sales and Similar Roles

Within the financial authorities, there are calls to further subdivide the scope of long-term employment exemptions. For example, in the 'three-line defense system' (1st line: sales, 2nd line: risk management & compliance support, 3rd line: internal audit), it is argued that long-term employment should not be allowed in the 1st line, where the risk of incidents is highest. The 2nd and 3rd lines do not handle funds directly, so the risk of incidents is relatively lower.

An FSS senior official said, "Currently, granting long-term employment exceptions by broad categories such as 'corporate finance, IT, foreign exchange & derivatives operations' is a crude way of grouping the three-line defense system," and "For example, it is undesirable for employees managing large-scale funds in the 1st line of corporate finance or derivatives finance to be exempt from rotation." This means that even within specialized fields, 1st line employees should be subject to rotation.

A banking industry official also said, "Following the Gyeongnam Bank embezzlement case, I understand that discussions are underway with financial authorities to significantly narrow the criteria for long-term employment exemptions."