Duplicate and Missing Items Found in Bank Sector Accountability Structure Documents
"Legtech Must Be Utilized Once Fully Implemented"
Preventing Improper Loans Through Strengthened Document Verification and Appraisal
The Financial Supervisory Service (FSS) announced that it found numerous issues requiring correction and supplementation in the early-submitted accountability structure diagrams by banks. Known as the "Financial Sector Serious Accident Punishment Act," the accountability structure diagram can hold even the Chief Executive Officer (CEO) accountable, leading financial companies to spend over a year meticulously preparing these diagrams. Additionally, measures have been established to strictly verify the authenticity of documents and reorganize the collateral value appraisal system to prevent cases of unfair loans.
According to the FSS on the 16th, an internal control workshop was held at 2 p.m. at the FSS headquarters in Yeouido, Seoul, targeting eight bank holding companies and 20 banks. This workshop was organized to establish an effective internal control system for preventing major financial accidents and implementing the accountability structure diagram, with about 170 internal control officers from the banking sector attending. The internal control workshops are held semiannually.
The FSS shared that it discovered numerous points of concern during the consulting process for the accountability structure diagrams. As a result of consulting nine bank holding companies and nine banks to support the early establishment of the accountability structure diagrams, deficiencies such as "overlapping responsibilities among executives" and "partial omission of designated responsible persons' duties" were identified. Accordingly, the FSS emphasized the need to understand the purpose of the system and guidelines to prevent legal violations when preparing and managing the accountability structure diagrams.
The accountability structure diagram is a document that allocates and specifies internal control responsibilities to financial company executives. Failure to fulfill the specified internal control management duties can legally implicate the financial company’s CEO. The official submission deadline for the accountability structure diagram is the 2nd of next month, and it will be applied immediately upon submission.
During the expert lecture on the day, methods to respond to financial accidents using "RegTech (Regulation + Technology)" after the implementation of the accountability structure diagram were introduced. Hyunchul Park, a partner at PwC Consulting, stated, "New technologies can enable real-time monitoring of laws and regulatory requirements or automate the verification of customer information such as identification cards."
The FSS also announced credit process improvement measures and internal control precautions prepared by the "Credit Process Improvement Task Force (TF)." For example, to prevent financial accidents involving the embezzlement of loan funds through false documents, the procedure for verifying the authenticity of important documents will be strengthened. When banks obtain documents, principles such as "direct data acquisition" will be established, and verification procedures for the authenticity of sales, lease, and rental contracts will be reinforced through issuing institutions. In response to frequent cases of unfair loans where loan limits are increased by inflating collateral values, improvement measures were prepared, including ▲reorganizing the external appraisal request system ▲strengthening control over manual appraisal designation ▲enhancing verification of external appraisal reports for vulnerable collateral.
Alongside this, cases of operating internal controls using new technologies and incentives were also shared. KB Kookmin Bank detects abnormal transactions and financial accidents in advance through artificial intelligence (AI) analysis and sends guidance messages to credit officers when suspicious cases of fraud or non-performing loans arise. Hana Bank shared measures to enhance the effectiveness of the mandatory leave system, such as reflecting the implementation status of mandatory leave in key performance indicators (KPIs). In cases where major financial accidents have already occurred, examples of financial accident reporting and response systems that banks can refer to for swift and effective accident response were also introduced.
Chunghyun Park, Deputy Director of the Banking Division at the FSS, urged, "Along with digitalization of work, I hope that not only the advancement of internal control systems and enhancement of the expertise of responsible personnel but also the fundamental establishment of a compliance mindset and responsibility-centered organizational culture will be achieved."
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