W100 bil. in losses incurred due to gross misconduct at financial firms: FSS data

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Financial firms suffered more than 100 billion won ($75 million) in losses due to breach of trust by employees over the past seven years, Financial Supervisory Service (FSS) data showed on Monday.

Breach of trust refers to the breaking of rules regarding the implicit trust of customers or other beneficiaries by taking advantage of their property, such as cash, to reap illicit gains.

Submitted to Rep. Kang Min-kuk of the ruling People Power Party (PPP) for public release, the data comes amid a growing number of financial crimes and subsequent need to enhance internal regulatory controls.

Of the aforementioned crimes, breach of trust and embezzlement most frequently inflict damage on customers and eventually the companies, according to the data.

It said that 101.38 billion won was illicitly gained by a total of 84 employees, both rank-and-file members and executives at financial services companies, thereby constituting a breach of trust between 2017 and July this year.

The damage inflicted in 2017 totalled 2.62 billion won. The amount rose to 17.1 billion in 2018, and then went up to 26.4 billion won in 2019.

The figure went down to 1.68 billion in 2020 but surged to 21.79 billion won a year later, before going back down to 20.95 billion won in 2022 and 10.74 billion won in the January-July period.

By industry, banks accounted for 42.1 percent of the gross misconduct or 42.68 billion won worth of losses.

Insurance companies accounted for 25.9 percent or 26.24 billion won worth of losses, followed by brokerage houses with 21.3 percent or 21.56 billion won, and credit card firms registered 10.7 percent or 10.87 billion won worth of losses.

Among the losses incurred, only 37.1 percent or 3.76 billion won was ever recovered.

“Such prevalence of breach of trust in the financial sector is reason to hold CEOs liable if such financial crimes occur at their companies,” Rep. Kang said.

He referred to the latest bill drafted by fellow party lawmaker, Yoon Han-hong, to amend financial laws and legally define and document the responsibilities of executives at financial firms.

The current law, when it comes to banks' self-regulatory controls, does not classify the scope of the liability in accordance with the chain of command.

The most recent case of breach of trust was found at Lotte Card, with its two marketing employees conspiring with the head of a subcontractor to siphon more than two-thirds of the money that was allotted for marketing subcontractors.

The two employees allegedly took 6.6 billion won of the 10.5 billion allocated for marketing purposes through a paper company and their family-owned companies. They invested in real estate and bought cars and other items, according to the FSS.