Bank CEOs may face liability for lax internal controls
The entrance to a Seoul branch of BNK Kyongnam Bank is seen on Aug. 2. Based in South Gyeongsang Province, the bank is being investigated by prosecutors for an embezzlement case involving its manager-level employee. Yonhap
By Yi Whan-woo
Commercial bank CEOs could face liability if their companies are caught committing forgery, embezzlement and other financial crimes, all of which have been rampant lately in the banking industry, according to financial industry officials, Sunday.
No bank CEOs have so far been held accountable for the above-mentioned crimes. Frustratingly, few of the CEOs have succeeded in finding ways to tighten measures and procedures so as to stop employee misconduct.
As a consequence, the Financial Services Commission (FSC) is pushing to legally define and document the responsibilities of executives at financial firms, according to their rank, regarding internal control measures, officials said.
They said the FSC is working with the ruling People Power Party (PPP) to draft a relevant bill.
Its possible enactment will require amendments to the law on the governance structure of financial services companies.
The current law gives vague guidelines concerning the setting of relevant criteria for self-regulatory control at lending firms. It does not classify the scope of liability in accordance with the chain of command.
Sources said that the FSS' plan is noteworthy because it specifically puts the spotlight on CEOs regarding the issue of accountability.
A public relations employee at a major bank said on condition of anonymity that he “heard of the plan and that the banking industry is paying attention to the subsequent steps to be taken by the FSC.”
For speedy and efficient enactment, the FSC is believed to be asking PPP lawmakers to submit the bill directly instead of the regulator itself doing so.
“It usually saves time in getting parliamentary approval if a bill is submitted by lawmakers compared to being submitted by the government,” an official at a major local bank said.
“We reckon that FSC-PPP cooperation reflects the financial regulator's commitment to bringing irresponsible CEOs to justice for lax internal controls.”
He was referring to CEOs' insufficient efforts to prevent financial crimes at both nationwide and regional banks, namely Woori Bank, KB Kookmin Bank, BNK Kyongnam Bank and DGB Daegu Bank.
The country's fourth-largest lender, Woori was called into question concerning its competence to securely manage customers' money after it failed to prevent embezzlement cases twice.
One of its former employees, assigned to the bank's headquarters, has been sentenced to jail for embezzling nearly 70 billion won ($52.5 million) from the bank over eight years before being arrested in 2022. The offender has now brought the case to the appeals court.
Also in mid-July this year, another employee at the bank's branch in North Jeolla Province was caught for allegedly embezzling about $70,000 from the branch's foreign exchange reserves to invest in crypto assets for personal purposes.
On Aug. 9, the FSC and the Financial Supervisory Service (FSS) jointly asked the prosecution to open investigations into KB Kookmin Bank employees for exploiting the undisclosed information of client firms so as to reap illicit profits worth more than 10 billion won. The employees were serving as proxy agents for the clients' securities-related transactions.
The prosecution's probe is now underway against BNK Kyongnam Bank after its manager-level employee was caught allegedly embezzling about 56 billion won over 15 years until April.
The FSS is inspecting DGB Daegu Bank after its sales agents at multiple branches forged documents related to customers and opened more than 1,000 accounts under their names to increase sales.