Banking federation chief emphasizes efforts on internal controls reform over HK-tied ELS controversy

Head of the Korea Federation of Banks (KFB) Cho Yong-byoung speaks at a press conference at the KFB's headquarters in Seoul, Monday. Yonhap

The head of the Korea Federation of Banks (KFB), Cho Yong-byoung, expressed regret over the recent controversies linked to the massive consumer losses involving equity-linked securities (ELS), which were tied to the performance of the Hang Seng China Enterprises Index, in a press conference on Monday.

He vowed to strengthen the banking industry's internal controls and to facilitate cooperation among those in the industry, such as financial authorities and customers so as to ensure smooth resolutions.

"I, too, experienced significant difficulties and engaged in self-reflection due to my involvement with private equity funds incident [while working for Shinhan Financial Group]. It's regrettable, and I apologize for the recurrence of such an incident, especially after the Financial Consumer Protection Act was enacted," Cho said.

Cho added, "I wish these elements will build up and serve as an impetus for the growth of the banking sector and capital markets. The KFB will dedicate efforts to concretize the structure and implementation of internal controls within banks."

He mentioned the 2021 case, in which investors faced massive losses due to the poor management of investment entities, including Optimus Asset Management. This led to the enactment of the Financial Consumer Protection Act.

In light of the Financial Supervisory Service's announcement on bank compensation guidelines on the same day, Cho was measured in his remarks, noting that this is only the beginning of discussions.

"In the future, I will engage in discussions with regulatory authorities and banks, focusing on issues that affect the entire banking industry as well as specific matters concerning individual banks," Cho said.

Responding to criticisms that the banking industry should not offer high-risk products, Cho emphasized that the focus should be on advancing the industry's asset management capabilities.

"I believe the discussion should not be limited to whether banks should offer an ELS product or not. As the banking industry progresses towards a focus on asset management, it's vital to broaden the spectrum of options available to customers in this domain. It is equally important to ensure that these options are not unduly limited," Cho said.

Cho also expressed his goals for broadening the scope of the banking industry's operations.

"At the beginning of the year, there was a heightened expectation regarding the role of banks, yet the outlook on their profitability remains pessimistic," Cho said.

"This appears to have led to a cautious approach within the banking sector, with business strategies being developed conservatively. Moving past the first quarter, my focus will shift towards fostering discussions on expanding banks into non-financial sectors and enhancing synergies between subsidiaries of financial groups," Cho added.