Banking industry loses trust due to illicit activities of some employees

DGB Daegu Bank's headquarters in Daegu / Yonhap

DGB Daegu Bank workers allegedly forge documents to open 1,000 customer accounts

By Lee Yeon-woo

Amid a sharp drop in public trust sparked by the unethical behavior of some bank employees, DGB Daegu Bank is facing scrutiny for allegedly forging customer documents in order to open up accounts. Such impropriety has raised serious concerns about the industry's apparent lack of effective internal controls, further eroding trust in the banking industry.

According to the Financial Supervisory Service (FSS), Thursday, the financial regulator has initiated an investigation into DGB Daegu Bank. The move comes after discovering that some bank employees allegedly forged customer documents and covertly opened accounts in customers' names without notifying them, aiming to boost their performance for upcoming employee evaluations.

Since August 2021, the bank has introduced a service that facilitates the use of the bank's accounts as a way to open securities accounts with various securities firms.

It is understood that bank employees duplicated the application forms filed out by customers wishing to open securities accounts. They then modified these duplicates to open accounts with a different stock firm. It is also alleged that they blocked notification texts related to the creation of the said accounts in order to cover up these unauthorized accounts.

The FSS assumes that the number of accounts created in this manner might exceed 1,000.

“We will thoroughly investigate all accounts suspected of unauthorized creation. Strict measures will be taken against any illegal and unfair practices revealed as a result of the inspection,” the FSS stated.

With this incident, DGB Daegu Bank's aspirations to transition into a commercial bank could also face setbacks depending on the severity of the misconduct. Initially, the bank was expected to undergo this transition seamlessly within the year.

“In the face of behaviors that undermine the principles of sound management, we pledge to take decisive action. In cooperation with the FSS' inspections, we are committed to diligently enhancing our systems to prevent any recurrence of such incidents,” DGB Daegu Bank stated in their official release.

The recent illicit activities of local banks have sent profound shockwaves throughout society.

Just a week ago, an executive at BNK Kyongnam Bank was discovered to have embezzled 56.2 billion won ($42.6 million) from the bank's project financing loan department. This Thursday, workers at KB Kookmin Bank were accused of securing 12 billion won in illicit profits through stock trading using confidential information.

Despite the financial authorities ardently urging financial firms to bolster their internal controls and even implementing a systemic improvement strategy last year, malpractices by bank employees continue.

"The most crucial aspect in a financial transaction is trust. It is really hard to regain the public's trust when these types of incidents happen and become known to the public," a bank official told The Korea Times.

For this reason, regulators are likely to expedite amendments to the current governance act. This would delineate duties related to internal controls for top leadership, including CEOs and other executives, further strengthening their responsibilities.