FSS, banks to draw up 'best practice' guidelines on corporate governance

The headquarters of the Financial Supervisory Service (FSS) in Yeouido, Seoul / Newsis

By Anna J. Park

The Financial Supervisory Service (FSS) and banks have jointly launched a taskforce team to cooperate in setting up guidelines for the banking industry's best practices in corporate governance.

The FSS announced Sunday that the kickoff meeting of the taskforce team took place late last week, drawing participants from eight financial holdings companies as well as the Korea Federation of Banks (KFB).

“Despite recent advancements in the corporate governance of banks in Korea, it is still regarded as insufficient, when compared to global standards. For instance, the boards of banks are not properly functioning at all, with regards to their essential role of overseeing and checking the banks' management,” Lee Joon-soo, Senior Deputy Governor at the FSS, highlighted.

“Some point out that banks' process for CEO appointment, as well as management succession procedures, remain perfunctory, lacking fairness and transparency,” Lee stressed, adding that the board members of a bank not only lack diversity but also fall short of expertise necessary for speedy changes facing the banking industry.

During the next three to four months, the taskforce team plans to draw up best practice guidelines on issues ranging from the appointment of CEOs and management succession procedures, overhaul of the evaluation and supporting system for independent directors, to the enhancement of internal control systems. The final results of the team will be confirmed and announced during the second half of this year.

Since President Yoon Suk Yeol spoke of the necessity of improving the corporate governance of banks in January this year, financial authorities have been putting greater emphasis on coming up with measures to bring changes to local banks' management systems.

In particular, the FSS has designated the issue of banks' corporate governance as the central theme of its supervisory activities for this year and next year. The state-run watchdog agency has also pledged to strengthen communications with boards of banks on a regular basis, while increasing frequencies of inspections on banks.

During the first half of this year, the FSS held meetings with the boards of three financial holding companies ― KB Financial Group, NongHyup Financial Group and Shinhan Financial Group ― as well as six banks, including NongHyup Bank, Kbank, Standard Chartered Bank of Korea, KB Kookmin Bank, Industrial Bank of Korea (IBK) and Shinhan Bank.

Lee Joon-soo, the senior deputy governor of the FSS, also met the chairmen of the boards of 16 banks nationwide late last week to listen to what they had to say regarding potential risk factors of the banking sector, measures to increase banks' capacities to absorb losses, and ways to strengthen internal controls.