Shinhan Bank's internal controls undergo testing

Shinhan Bank headquarters in downtown Seoul / Yonhap

By Lee Yeon-woo

Shinhan Bank is facing additional challenges in addressing internal control risks, after one of its employees reportedly embezzled customer deposits. This comes in addition to an investigation over the alleged mis-selling of funds.

On Tuesday, the Seoul Metropolitan Police searched the bank's headquarters in downtown Seoul to obtain data related to sales of the Fidelis Private Fund. This investigation follows a lawsuit filed last September by the fund's investors against the bank and Fidelis Asset Management.

The police suspect that the bank sold the fund to customers without fully explaining its profit structure or the possibility of losing the principal. The investors claim that 385 investors lost around 180 billion won ($135.79 million).

A Shinhan Bank official told The Korea Times that the police search was expected. “The bank reached a private settlement with most of the fund investors between September and October last year, although some refused to participate,” the official noted.

“There is no guaranteed recourse after the private reconciliation, except for filing a lawsuit. Some customers thus filed suit, and the police consequently conducted a search-and-seizure on the bank to investigate the reported case.”

In addition, a separate internal investigation is underway into the embezzlement allegation. On Tuesday, a banker from the bank's Gangnam District branch was found to have embezzled customers' deposits, estimated to total at least 2 hundred million won.

This is putting an additional burden on the bank, as the Financial Supervisory Service (FSS) has recently singled it out as one of the organizations where a significant amount of abnormal foreign currency remittances were spotted.

As embezzlement cases have been increasing in the country's banking industry, Jin Ok-dong, a former CEO of Shinhan Bank who took the helm of Shinhan Financial Group this year, has also been highlighting the importance of internal control systems.

“When we reorganized the bank earlier this year, we established a control tower to drive innovation in internal control,” the official noted. “Additionally, we are deploying compliance officers to local branches to prevent and control accidents proactively.”