Deputy Director Ham Yong-il Holds Meeting with Securities CEOs
Emphasizes 'Internal Control' Regarding Shinhan Securities ETF Incident
As the aftermath of the declaration of martial law spread throughout the financial market, the Financial Supervisory Service (FSS) met with the CEOs of 36 domestic securities firms to check their preparedness. Additionally, they requested a thorough reassessment of the appropriateness of the securities firms' internal controls and incentive structures from the ground up.
On the morning of the 5th, Ham Yong-il, Deputy Governor of the FSS, attended an 'Emergency Securities Firms Issues Meeting' held at the Korea Financial Investment Association in Yeouido and stated, "I ask that CEOs prepare a 'comprehensive contingency plan' addressing risk factors such as liquidity and exchange rates, and respond closely to any unforeseen situations."
Deputy Governor Ham emphasized, "We must maintain a close cooperative system with the financial supervisory authorities to optimize our capability to respond to market volatility," adding, "The financial authorities also plan to mobilize all available market stabilization measures, including unlimited liquidity supply, to address all sources of market instability."
He further stated, "We will swiftly and steadily complete the ongoing capital market advancement tasks to firmly protect our capital market and the national assets."
President Yoon Suk-yeol declared martial law. On the 4th, when the National Assembly resolved to lift the martial law, the KOSPI, won/dollar exchange rate, and KOSDAQ indices were displayed on the electronic board in the Hana Bank dealing room in Jung-gu, Seoul. Due to the impact of martial law, the KOSPI started at -1.97%, and the exchange rate was 1,418 won. Photo by Jo Yong-jun
Deputy Governor Ham also urged that the appropriateness of internal controls and incentive structures be reassessed from the ground up under the responsibility of the CEOs. This is interpreted as targeting the internal control issues revealed by the recent 130 billion KRW loss incident involving an Exchange-Traded Fund (ETF) at Shinhan Investment Corp.
Ham pointed out, "In the recent large-scale financial accident, the short-term performance-based compensation system induced employees to pursue excessive profits and risks," adding, "Both the vertical internal controls by superiors and the horizontal internal controls by compliance, risk management, and audit departments did not function properly, resulting in illegal activities being completely uncontrolled and unmanaged."
The FSS views the financial accident at Shinhan Investment Corp as having occurred due to the application of the same performance system used by the Proprietary Investment (PI) department to the hedge operations department, which led to excessive investment transactions. Therefore, they emphasized the need to redesign the performance compensation system for each securities firm’s business unit in a way that aligns with their core business objectives. In particular, the FSS plans to rigorously inspect the 'appropriateness of internal control operations' as a key task in their 2025 inspection agenda.
Alongside this, the FSS also pointed out securities firms’ acts of maximizing their own interests, such as the public tender offer by Korea Zinc. Deputy Governor Ham warned, "Recently, many cases have been found where securities firms, during processes such as underwriting initial public offerings (IPOs), exploited information asymmetry with customers to prioritize the firms’ profits and undermine investor trust," adding, "We will respond strictly to securities firms that neglect conflict of interest management with investors or violate the underwriter’s duty of care."
The FSS plans to swiftly seek countermeasures with the industry through means such as 'CEO letters' whenever urgent issues related to the capital market arise in the future.
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