▲ Financial Supervisory Service (FSS)
The Financial Supervisory Service (FSS) has pointed out that bank holding companies are applying governance best practices in a formalistic and expedient manner, effectively using them to build defensive moats for incumbent management.
The FSS shared these findings during a workshop on internal controls in the banking sector held on June 29, 2026.
The inspection revealed that the process of appointing outside directors lacked sufficient verification of independence, such as checking for conflicts of interest, and was heavily skewed toward candidates recommended from within.
It was also confirmed that boards of directors formed under the current CEO system participated in the CEO succession process in a passive and formalistic manner, failing to adequately serve their function of checking management.
In some cases, succession procedures were altered to favor the incumbent CEO, and records of candidate evaluations and minutes from the executive recommendation committee were poorly managed.
The FSS also highlighted issues such as the superficial management of candidate pools and the creation of a competitive environment that disadvantages external candidates.
Furthermore, there was a lack of information provided to shareholders regarding the appropriateness of individual director compensation, and in some instances, executives participated in the compensation committee that determined their own pay.
The FSS emphasized the need for a rational compensation system that prevents excessive risk-taking.
Financial authorities are currently discussing improvement measures through a task force (TF) on advancing governance, focusing on strengthening the authority and responsibility of the board, tightening control over CEO appointments and reappointments, and improving the rationality of performance-based compensation.
The improvement plan is expected to be announced next month.
The FSS is also currently inspecting the misuse of business loans for unauthorized purposes and the status of internal controls at financial firms.
At the workshop, the agency shared major shortcomings, such as the omission of post-loan inspections and inadequate verification of fund usage, and urged the banking sector to improve internal controls, including systematic management of post-loan monitoring and violations.
Additionally, an inspection of six banks regarding the Personal Debtor Protection Act revealed numerous cases of infringement on debtor rights throughout the entire process, from delinquency management to debt adjustment.
These cases include inappropriate applications for residential auctions, violations of limits on collection contact frequency, and failure to notify customers of impending acceleration of debt or the transfer of claims.
The FSS plans to strictly sanction any violations of the law and has ordered strengthened protection for the rights of delinquent and vulnerable debtors.
The importance of establishing internal controls in line with the adoption of artificial intelligence (AI) was also emphasized.
Kwak Bum-jun, Assistant Governor for Banking Supervision, stated, "In line with the rapid development of AI technology, it is necessary to establish internal controls and governance that can prevent and manage the unpredictable risks associated with AI."
He added that financial firms must also strengthen internal controls to prevent financial accidents and reinforce protection systems for vulnerable groups.
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