Daegu Bank Suspended from Related Operations for 3 Months over 'Illegal Securities Account Opening'... "Sincerely Apologize"

20 Billion Won Fine Imposed
Salary Reduction for 3 Months, Reprimand, and Warning Measures for 177 Employees

Daegu Bank, which arbitrarily opened securities accounts without customer verification, will face severe sanctions including a 3-month suspension of related operations and a fine of 2 billion KRW. Disciplinary measures such as a 3-month salary reduction, reprimands, and warnings have also been decided for hundreds of employees.

On the 17th, the Financial Services Commission held its 7th regular meeting and finalized these sanctions against Daegu Bank and its employees for violations of the Real Name Financial Transactions Act, the Banking Act, and the Financial Consumer Protection Act.

Sanctions on financial institutions are divided into five levels: institutional caution, institutional warning, corrective orders, suspension of business (including suspension of operations), and cancellation of registration or approval. Institutions receiving an institutional warning or higher face restrictions such as being unable to enter new business areas requiring supervisory approval for at least one year.

Following an unscheduled inspection of Daegu Bank by the Financial Supervisory Service in August last year, it was found that 11 employees at 56 branches of Daegu Bank arbitrarily opened 1,657 securities accounts linked to bank deposits under the names of 1,547 customers from August 2021 to July last year without customer verification.

For example, if a customer applied to open an account with Securities Company A at a bank counter and completed and signed an electronic application form, the employee printed it out, arbitrarily modified the contents, and opened accounts with other securities companies that the customer did not apply for.

Additionally, at 229 branches of Daegu Bank, from September 2021 to July last year, the terms of service for securities account opening, which are contract documents, were not provided when opening securities accounts linked to bank deposits for 85,733 customers.

[Image source=Yonhap News]

The Financial Services Commission judged that Daegu Bank violated the obligation to verify the true identity of customers during financial transactions under the Real Name Financial Transactions Act and the duty to maintain the confidentiality of financial transactions. It also found violations of the obligation to comply with financial accident prevention measures under the Banking Act and the obligation to provide contract documents under the Financial Consumer Protection Act. Disciplinary actions were taken against 177 employees, including branch staff who arbitrarily opened securities accounts and managers responsible for supervision (25 with a 3-month salary reduction, 93 reprimands, and 59 warnings), considering the number of violations and the degree of involvement.

Supervisory responsibility was also imposed on Daegu Bank’s head office executives, including department heads, who were included among those subject to disciplinary action. This was in consideration of the fact that many branches and employees of Daegu Bank were involved in this incident and that the Marketing Promotion Department at Daegu Bank’s head office had formulated management policies that could have influenced the increase in securities account openings but neglected proper supervision.

The Financial Services Commission and the Financial Supervisory Service stated, “To prevent recurrence of similar incidents, we plan to closely inspect Daegu Bank’s improvement plans for the securities account opening process linked to bank deposits and related internal controls, as well as the status of their implementation.”

Meanwhile, Daegu Bank issued a statement on the same day, saying, “We sincerely apologize for causing concern due to an incident that should never happen at a financial company whose life is honesty and trust.”

It added that except for the 3-month suspension of securities account opening operations, all other transactions will proceed normally, and said, “We will do our best to minimize customer inconvenience.”

Daegu Bank emphasized its efforts to prevent recurrence. It stated, “We have established an Internal Control Innovation Committee within the board of directors to ensure thorough internal controls, are promoting early adoption of a responsibility structure, newly appointed an external compliance officer, and are building an advanced internal control system with specialized systems.” It added, “Through enhancing the sense of responsibility of all employees with a firm stance of no concession or compromise, we will do our best to restore customer trust.”