FSS warns Shinhan and Woori over lack of internal controls

Financial Supervisory Service (FSS) headquarters on Yeouido, Seoul / Yonhap

By Anna J. Park

The country's top financial regulator has ordered Shinhan Bank and Woori Bank to make up for their weaknesses regarding their internal controls. The notifications by the Financial Supervisory Service (FSS) to the two major banks are aimed at preventing various kinds of financial accidents.

In particular, the FSS told Shinhan Bank to strengthen its fraud detection system (FDS) and overhaul its internal report system for financial accidents.

The regulator warned that Shinhan Bank's exposure to risks has increased with the bank's deepened digitalization and loan expansion to lower-credit customers, yet its FDS failed to take appropriate action in preventing financial accidents. Instead of focusing actively on analyzing transactional monitoring, the bank's detection system is operated passively to prevent the recurrence of previous financial accidents, the FSS added. The financial authority also urged the bank to strengthen its internal report structures so as to improve the effectiveness of its communication.

“Regarding the FSS' recommendations that Shinhan Bank improve its FDS, the bank has immediately followed through with some of them, including setting up procedural rules for how to operate an FDS consultative body as well as holding FDS meetings on a regular basis,” an official from Shinhan Bank said. “The bank is also strengthening its monitoring and report system.”

The FSS also called on Woori Bank to improve its post-management of asset managers' fund products that will be sold through the bank, aiming to prevent a recurrence of the lender's previous mis-selling cases.

The financial authority added the bank should strengthen deliberation on the prospectus of its fund products. The FSS specifically ordered the bank's compliance officer to conduct a final prospectus review in order to strengthen consumer protection. In addition, the FSS warned that the bank should put a stronger emphasis on avoiding conflicts of interest.

Woori Bank's official told The Korea Times Monday that the bank will put more emphasis on improving its internal control issues, as urged by the FSS.