Financial Supervisory Service Receives 'B' Grade, Next Year's Keywords: 'Internal Control and Strengthening Cooperation with Financial Services Commission'

First Year of Lee Bok-hyun as FSC Chairman: 'A' Grade
Dropped to 'B' in One Year
Impact of Hong Kong ELS and Internal Control Incidents
Accompanying Opinion: "Need to Strengthen Cooperation with Financial Services Commission"

The Financial Supervisory Service (FSS) is expected to focus more on internal control issues of financial companies next year and strengthen cooperation with the Financial Services Commission (FSC), according to analyses. This comes after internal control problems in financial companies were repeatedly pointed out in this year's management evaluations. In particular, since a private committee member separately recommended 'strengthening cooperation with the FSC,' there is growing interest in whether the approach to investigating unfair trading will change.

According to financial authorities on the 19th, the FSC's Management Evaluation Committee (MEC) gave the FSS a 'B' grade in the management evaluation and audit performance assessment. The FSS received an 'A' grade last year for the first time in seven years. Although it rose to an A in the first management evaluation after the appointment of the current governor, it has dropped back to a 'B' grade within a year.

The incomplete sales scandal of Hong Kong-listed Equity-Linked Securities (ELS) and consecutive internal control accidents at financial companies affected the management evaluation. Since taking office, Governor Lee Bok-hyun of the FSS has continuously emphasized strengthening internal controls. At the end of last month’s executive meeting, he instructed, "In the regular inspection process, thoroughly check the financial accidents pointed out at the recent National Assembly audit, including those at banks, as well as the poor investment and operation of overseas local subsidiaries, and prepare measures to enable fundamental improvements."

Accordingly, it is expected that the reins on internal controls in each financial sector will be tightened further from next year. An FSS official said, "Strengthening internal controls has always been a major issue. Since the Hong Kong ELS incident and internal control accidents at financial companies were pointed out in this year’s management evaluation, we naturally have to pay more attention."

At the same time, the MEC’s order to strengthen cooperation with the FSC also draws attention. According to the MEC’s supplementary opinion, "It is necessary to further strengthen cooperation with the FSC regarding investigations into unfair trading in the capital market." In particular, it suggested that market information collected and prior reports related to the Fast Track case should be actively shared with the FSC.

Regarding this, a financial investment industry insider explained, "I understand that the FSS’s strengthened cooperation with the prosecution over the Fast Track case has caused dissatisfaction within the Securities and Futures Commission. The inclusion of this in the supplementary opinion can be interpreted as an instruction to strengthen cooperation with the FSC."

Meanwhile, the FSS undergoes management evaluations through the FSC’s MEC. The MEC is composed of external private members who make independent judgments. The grading scale consists of six levels: △S grade (95-100 points), △A grade (85-94 points), △B grade (75-84 points), △C grade (65-74 points), △D grade (60-64 points), and △E grade (below 60 points). From D grade, sanctions such as warnings or cautions are imposed. The FSS received a C grade in 2016-2017 and consecutive B grades from 2018 to 2021.