Financial Supervisory Service Holds Internal Control Workshop with Banking Sector

Sharing Cases of Inadequate Internal Controls in the Banking Sector

The Financial Supervisory Service (FSS) announced on the 16th that it held the '2024 Banking Sector Internal Control Workshop.'

The workshop is held semiannually with the banking sector to respond to financial accidents and strengthen internal controls. This time, about 160 internal control officers from eight bank holding companies and 20 banks attended. Given the repeated occurrence of major financial accidents in the banking sector, the workshop focused on enhancing banks' internal control capabilities, fostering a risk-centered organizational culture, and establishing an effective internal control system through expert lectures and case presentations by the FSS and banks.

Park Chung-hyun, Deputy Director of the FSS, emphasized that even if banks have internal control procedures and accident prevention measures in place, internal controls cannot function properly without a sound organizational culture. He stated, "To prevent the spread of similar incidents when financial accidents occur, the FSS and banks must communicate closely and respond promptly by establishing a rapid information-sharing system between the FSS and banks." He added, "The FSS will actively support the internal control activities of the Compliance and Examination Departments to ensure that banks' internal controls operate effectively."

Lee Kyu-bok, Financial Advisor at the FSS, suggested directions for strengthening consumer protection related to the continuous occurrence in recent years of incomplete sales of non-deposit products such as Derivative Linked Funds (DLF), private equity funds, and Equity-Linked Securities (ELS) in the banking sector.

Byun Hye-won, Head of the Financial Consumer Research Division at the Korea Insurance Research Institute, emphasized that in addition to effective sanctions for banks' legal compliance, consideration of employees' behavioral biases and morality, as well as the banks' organizational culture and social norms, play important roles. She noted that to induce banks' legal compliance, measures considering employees' behavioral economic characteristics are necessary alongside strengthening internal controls and regulations.

The FSS also shared with the banking sector the results of a real estate collateral loan inspection conducted to prevent unfair loans through inflated real estate collateral values recently occurring in banks and to promptly improve deficiencies in internal controls. The FSS provided guidance on improvement directions for major internal control shortcomings identified in credit handling procedures and shared cases of internal control deficiencies and operations to serve as references for future internal regulations and IT system improvements.

Furthermore, the FSS shared the main contents of the recently announced 'Operational Guidelines on Sanctions for Violations of Internal Control Management Obligations by CEOs and Executives of Financial Companies (Draft)' with the banking sector. The FSS requested active feedback to ensure that diverse opinions from the banking sector are sufficiently reflected in the final version of the guidelines.

An FSS official stated, "This workshop was a meaningful occasion for the FSS and the banking sector to communicate and share awareness on key internal control issues amid the growing importance of internal controls in financial companies." He added, "We will actively support banks in enhancing the effectiveness of their internal control functions and strengthening their own accident risk management capabilities."