Tension Deepening Between KB, FSS
By Yoon Ja-young
Staff Reporter
The rift between Kookmin Bank and the financial regulator has entered a fresh round as the Financial Supervisory Service (FSS) announced its plan to take legal action against the alleged leak of a memo regarding its preliminary audit of the nation's largest lender and its holding company KB Financial Group (KBFG).
The move by the FSS came after the memo verified that the FSS had carried out an unusually-tough audit of Kookmin and its chief Kang Chung-won, adding to the suspicion that this was why the CEO withdrew from chairmanship of KBFG.
At a press briefing Friday, it said that it would take punitive measures on Kookmin's unlawful activities. "The leakage was due to a lack of ethics required for financial workers and loose internal control," said Joo Jae-seong, head of the bank supervision division at FSS.
The FSS, headed by governor Kim Jong-chang, considers the leakage as interference in its auditing process. The law stipulates that banks that refuse or hinder FSS inspections could be subject to up to a 10 million won fine.
The regulator is facing growing criticism as the memo suggested that its preliminary audit focused on checking whether the CEO and company executives broke banking rules.
Earlier in the day, Rep. Hong Young-pyo of the main opposition Democratic Party released the log of a preliminary audit the FSS carried out on Kookmin Bank, which includes details of the examination.
According to the seven-page log recorded by Kookmin the preliminary exam held from Dec. 16 through 23 was much tougher than the top regulator claimed. The CEO Kang recently withdrew as the nominee to head KB Financial Group (KBFG) after an unusually tough examination of the group by the top financial regulator, but both the regulator and Kang himself have claimed that his withdrawal had nothing to do with the audit.
According to the lender's internal report, the FSS looked into the bank's business operation on the first day of the exam, including the investment loss it incurred with BCC Bank of Kazakhstan and losses from cover bonds. It also examined the minutes of the board of directors' meeting.
On the second day, however, the regulator asked for data on Kookmin Bank employees participating in MBA courses at Chonnam National University.
It seemed to focus on the relationship between Kookmin Bank and the university as a business professor of the school, Cho Dam, is the chairman of the board of the KBFG. Cho was also head of the commission that appointed Kang as the president of KBFG, from which Kang withdrew.
The top regulator also examined drivers of Kang, twice. It asked them whether Kang used the cars for private purposes, and also required them to hand in their driving logs. It obtained 13 desktop computers of bank managers, and seven from secretaries.
Following the preliminary exam, the regulator sent 42 of its officials to KBFG Thursday for a full-scale audit, which will last for one month.
In the meantime, in a statement, Kookmin said, "We apologize for troubling financial authorities as a result of the leak," adding it plans to punish the person responsible. Banks usually record memo on FSS inspections to report to the group's top management.