Political Affairs Committee Audit Starts Next Week... Secondary Financial Sector on Edge Over Hacking and Consumer Protection

October 14: Personal Information Protection Commission and Fair Trade Commission
October 20: Financial Services Commission
October 21: Financial Supervisory Service
October 28: Comprehensive Audit
Political Pressure Expected Over Serie

After the Chuseok holiday, the financial sector immediately enters the National Assembly audit season. This year, with the heads of major financial holding companies and bank CEOs excluded from the witness list for the Political Affairs Committee audit, attention is expected to focus on a series of hacking incidents in the secondary financial sector, internal controls, and consumer protection measures.

According to the National Assembly and the financial sector on October 6, the Political Affairs Committee will sequentially conduct audits, starting with the Personal Information Protection Commission and the Fair Trade Commission on the 14th, followed by the Financial Services Commission on the 20th, the Financial Supervisory Service on the 21st, and a comprehensive audit on the 28th. Recently, the Political Affairs Committee held a general meeting and finalized a list of 41 witnesses and references to be summoned for the audit.

Yoon Han-hong, Chairman of the National Assembly's Political Affairs Committee, is speaking at the 'Lotte Card Personal Information Leakage Incident, Victim Protection Measures and Recurrence Prevention Policy Meeting' hosted by the People Power Party at the National Assembly on the 23rd of last month. Photo by Kim Hyun-min

This year, the financial sector has experienced a series of major hacking incidents. In April, two corporate insurance agencies (GAs) entrusted with selling insurance products were hacked, resulting in the leakage of personal information of about 1,000 customers. In June, Wellix F&I Capital, an affiliate of Welcome Financial Group, suffered a ransomware attack from an overseas hacker organization. Afterwards, a Russian hacker group claimed on the dark web that it possessed the entire customer database of Welcome Financial Group. In July, SGI Seoul Guarantee also experienced a ransomware hacking incident. As a result, the Seoul Guarantee website was paralyzed for four days, causing delays in processing guarantee work for mortgage loans, jeonse loans, and mobile phone installment activations. In August, Lotte Card was hacked, leading to the leakage of information of 2.97 million customers.

To hold those responsible for the hacking incidents accountable, the Political Affairs Committee requested the attendance of Jo Jwajin, CEO of Lotte Card, Kim Byung-joo, Chairman of MBK Partners, and Kim Young-seop, CEO of KT, as witnesses for the audit of the Personal Information Protection Commission and the Fair Trade Commission. During the audit of the Personal Information Protection Commission, questions are expected regarding the status of security investments by financial companies and their ability to respond to hacking. The audits of the Financial Services Commission and the Financial Supervisory Service are expected to focus on sanctions against financial firms involved in hacking incidents and institutional improvement measures.

Although the heads of the five major financial holding companies (KB, Shinhan, Hana, Woori, NH Nonghyup) are not included as witnesses for this audit, Kim Yong-beom, Vice Chairman of Meritz Financial Group, has been included as a witness for the Financial Supervisory Service audit. The reason is related to 'real estate project financing (PF) joint guarantees.' Last month, the Financial Services Commission issued an authoritative interpretation stating that it is a violation of the Financial Consumer Protection Act for subcontractors to bear joint guarantee responsibility for prime contractors in real estate PF projects. As Meritz Financial Group affiliates have a high proportion of joint investments in real estate PF, it appears the summons was requested to question these issues. Criticism is also expected regarding loans related to Homeplus by Meritz Financial Group and suspicions of insider trading by a former CEO of Meritz Fire & Marine Insurance, which was recently reported to prosecutors by the Securities and Futures Commission.

As the separation and reorganization plan for the Financial Services Commission and the Financial Supervisory Service was excluded from the government organization restructuring, questions are also expected about future measures related to the consumer protection function of financial authorities. The government had initially planned to strengthen consumer protection by separating the Consumer Protection Bureau from the Financial Supervisory Service and upgrading it to the Financial Consumer Protection Agency. However, due to strong opposition from Financial Supervisory Service employees, the plan was scrapped, and attention is now focused on the reform plan of Lee Chanjin, Governor of the Financial Supervisory Service. Governor Lee is reportedly preparing an organizational restructuring that would elevate the Consumer Protection Bureau to a General Headquarters for Financial Consumer Protection.

Regarding the insurance sector, which receives the highest number of financial complaints, criticism is expected over the increase in complaints about incomplete sales and indemnity insurance, as well as measures to prevent insurance fraud. Issues such as accounting irregularities at life insurance companies like Samsung Life Insurance, and the soundness of insurers in relation to International Financial Reporting Standards (IFRS 17) and the risk-based capital ratio (K-ICS), are also expected to be discussed. Although insurance company CEOs are not included in the witness list for this Political Affairs Committee audit, the CEOs of the six major non-life insurance companies (Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, Meritz Fire & Marine Insurance, KB Insurance, Hanwha General Insurance) have been listed as references for the audit by the Agriculture, Food, Rural Affairs, Oceans & Fisheries Committee. This is in response to concerns that residents of islands and remote areas are being disadvantaged in the process of purchasing auto insurance.