By Chung Ah-young
The financial watchdog will strengthen restrictions on the authority of financial holding companies amid a recent conflict between KB Financial Group and Kookmin Bank.
The Financial Services Commission (FSC) said it will announce a plan to drastically reform the management system for the financial holding companies next month.
This is part of its comprehensive measures to enhance competitiveness in the financial industry which was unveiled last November.
Under the plan, the FSC will restrict the authority of the heads of the financial holding companies to prevent them from influencing subsidiaries.
Currently, the KB Financial-Kookmin Bank conflict seems to be a power struggle between the holding company and its bank over the change of a computer system. In that process, the bank's outside directors followed the holding company's decision.
The FSC said that wholly owned subsidiaries such as Kookmin Bank don't have to have outside directors. Instead, the holding companies will have more responsibility for losses or any problems, while having their authority reduced to create more transparency.
"A special case clause in the current law on financial holding companies stipulates wholly owned subsidiaries don't have to keep outside directors. But many financial firms don't follow it," an FSC official said.
He said that the FSC will enforce this clause more strictly. Outside directors of subsidiaries who hold a 100 percent share of the holding companies end up representing the interests of the latter under the current structure, which allows heads of the holding company to influence in appointments for affiliated companies.
"The goal of this reform plan is to reduce financial holding firms' influence and increase their responsibility. They are supposed to exercise their authority through channels such as management and risk management committees," the official said.
The measure is designed to prevent "unofficial" orders from the heads of holding companies through verbal instruction or by telephone, not through the official process requiring documents.
Since the local financial market turned to holding company management about a decade ago, other financial institutions have also suffered from internal disputes with top executives of different subsidiaries struggling for power.
Woori Finance Holding, the nation's first banking group which was set up in 2001, and Woori Bank clashed between 2008 and 2013 as the former's chairman, Lee Pal-seung, wielded his influence to restrict the bank president's managerial rights.
Shinhan Financial Group and Shinhan Bank were also entangled in a legal battle over embezzlement and misappropriation of funds accusations in 2010.
Recently, Meritz Financial Group and Meritz Fire & Marine Insurance argued over the group chairman's attempt to control the insurance firm through Meritz Securities, leading to the resignation of the insurance firm's head as a protest.
Meanwhile, the Financial Consumer Agency (FICA) said it will file a complaint with the prosecution against KB Financial Chairman Lim Young-rok and Kookmin Bank President Lee Kun-ho and the bank's outside directors.
They are accused of allegedly misappropriating corporate funds in their power struggle over a project to change the computer system worth 200 billion won.
The internal dispute erupted after Lee and the bank's chief auditor Jung Byung-ki who opposed the board of directors' decision over the system change, which Lim is believed to have pushed, brought the case to the Financial Supervisory Service. The bank filed a petition with a local court to negate the board's decision.
"In the past, whenever new heads took office at financial firms, controversy arose over personal interests and expensive new projects, for example, spending billions of won to change the companies' signboards nationwide," FICA head Cho Nam-hee said.
KB units have denied that the scandal is related to personal interests.
The financial watchdog will strengthen restrictions on the authority of financial holding companies amid a recent conflict between KB Financial Group and Kookmin Bank.
The Financial Services Commission (FSC) said it will announce a plan to drastically reform the management system for the financial holding companies next month.
This is part of its comprehensive measures to enhance competitiveness in the financial industry which was unveiled last November.
Under the plan, the FSC will restrict the authority of the heads of the financial holding companies to prevent them from influencing subsidiaries.
Currently, the KB Financial-Kookmin Bank conflict seems to be a power struggle between the holding company and its bank over the change of a computer system. In that process, the bank's outside directors followed the holding company's decision.
The FSC said that wholly owned subsidiaries such as Kookmin Bank don't have to have outside directors. Instead, the holding companies will have more responsibility for losses or any problems, while having their authority reduced to create more transparency.
"A special case clause in the current law on financial holding companies stipulates wholly owned subsidiaries don't have to keep outside directors. But many financial firms don't follow it," an FSC official said.
He said that the FSC will enforce this clause more strictly. Outside directors of subsidiaries who hold a 100 percent share of the holding companies end up representing the interests of the latter under the current structure, which allows heads of the holding company to influence in appointments for affiliated companies.
"The goal of this reform plan is to reduce financial holding firms' influence and increase their responsibility. They are supposed to exercise their authority through channels such as management and risk management committees," the official said.
The measure is designed to prevent "unofficial" orders from the heads of holding companies through verbal instruction or by telephone, not through the official process requiring documents.
Since the local financial market turned to holding company management about a decade ago, other financial institutions have also suffered from internal disputes with top executives of different subsidiaries struggling for power.
Woori Finance Holding, the nation's first banking group which was set up in 2001, and Woori Bank clashed between 2008 and 2013 as the former's chairman, Lee Pal-seung, wielded his influence to restrict the bank president's managerial rights.
Shinhan Financial Group and Shinhan Bank were also entangled in a legal battle over embezzlement and misappropriation of funds accusations in 2010.
Recently, Meritz Financial Group and Meritz Fire & Marine Insurance argued over the group chairman's attempt to control the insurance firm through Meritz Securities, leading to the resignation of the insurance firm's head as a protest.
Meanwhile, the Financial Consumer Agency (FICA) said it will file a complaint with the prosecution against KB Financial Chairman Lim Young-rok and Kookmin Bank President Lee Kun-ho and the bank's outside directors.
They are accused of allegedly misappropriating corporate funds in their power struggle over a project to change the computer system worth 200 billion won.
The internal dispute erupted after Lee and the bank's chief auditor Jung Byung-ki who opposed the board of directors' decision over the system change, which Lim is believed to have pushed, brought the case to the Financial Supervisory Service. The bank filed a petition with a local court to negate the board's decision.
"In the past, whenever new heads took office at financial firms, controversy arose over personal interests and expensive new projects, for example, spending billions of won to change the companies' signboards nationwide," FICA head Cho Nam-hee said.
KB units have denied that the scandal is related to personal interests.
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