Financial heads to face tight scrutiny at Assembly audit
National Policy Committee is in session at the National Assembly, Sept 22. Korea Times file
By Lee Kyung-min
Heads of state-run and private financial organizations will undergo rigorous scrutiny at the upcoming National Assembly audit over a slew of botched financial policies highlighted by a failure to maintain political neutrality, and employee indiscretions, according to industry sources, Sunday.
Under the tightest scrutiny will be fiascos involving derivative-linked funds (DLF) and funds unredeemed due to mismanagement of private equity funds (PEFs) and their operators. The former is a highly complicated, intricately structured derivative financial product and the latter an alternative investment class consisting of capital not listed on publicly exchange. Both led to immense investor losses with many senior citizens having lost their entire retirement savings.
The National Policy Committee under the National Assembly ― a standing committee responsible for the oversight of over 10 entities including the Financial Services Commission (FSC), Financial Supervisory Service (FSS), Korea Development Bank (KDB) and Industrial Bank of Korea (IBK) ― will begin the session for the FSC Oct. 12. This will be followed by audit of the FSS, Oct. 13, the KDB and the IBK, Oct. 16 and Korea Deposit Insurance Corporation (KDIC) and Korea Securities Depository (KSD), Oct. 20.
Among those to be called in for reference are NH Investment & Securities CEO Jeong Young-chae, Daishin Securities CEO Oh Ik-keun and Hana Bank Vice President Park Sung-ho, all of whose firms engaged in the mis-selling of the highly criticized financial products.
They are likely to shed light on why their sales policy neglected consumer protections, and how careless and derelict the financial authorities were in their oversight responsibilities. Also to be present will be a spokesperson for a group representing the victims who will speak on their plans to seek legal remedies.
A heated debate is expected concerning the New Deal Fund, a government policy fund of 20 trillion won ($17 billion) designed to promote the Korean New Deal, comprised of 160 trillion won in investments in two sustainable growth areas.
At issue is whether it is appropriate to cover possible losses of up to 10 percent with taxpayers' money in operating the 20 trillion won, about a third of which will be from government spending (3 trillion won) and state-run lenders (4 trillion won), with the remaining 13 trillion won purportedly to come from a private investors' pool.
The financing of the government-led fund will be questioned by opposition lawmakers, mostly on whether state lenders had to cough up funds due to behind-the-scenes influence, a circumstance that could later develop into criminal coercion or extortion cases.
Concern has been raised by market watchers who find the idea of the government using taxpayers' money to make up for losses ― a result that should be owned by individual investors for their choice in investments ― “highly concerning”.
The policy inconsistency in the process let alone its viability will be laid bare as the government abruptly announced that only 10 percent in investor losses will be reimbursed, in a flip-flop decision after promising that up to 35 percent would be covered.
FSS Governor Yoon Suk-heun and KDB Chairman Lee Dong-gull will be grilled for having attended a book signing event organized by Lee Hae-chan, the former head of the ruling Democratic Party of Korea (DPK).
The IBK will be grilled for a lack of internal control and prevalent employee moral hazard illustrated by a mid-level worker gaining billions of won in profit after buying 29 pieces of real estate with 7.57 billion won in loans taken out between March 2016 and June 2020 under the names of his family members and corporate entities set up using their names.