Korea seeks to overhaul banks' corporate governance

• Published date: 01 March 2023
• Publication title: The Korea Times

One of the key areas that Korean banks are lagging behind global financial firms is corporate governance.

Along with the country's complex regulations, a less-than-effective system of checks and balances has been cited as a key factor resulting in the undervaluation of stocks issued by Korean financial institutions compared to their earnings performances. A series of financial accidents that occurred over the past few years further highlights the structural weaknesses of local banking groups in terms of governance.

Against this backdrop, financial authorities have placed top priority this year on strengthening internal control systems at financial institutions and improving corporate governance. In order to achieve the goal, both the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) recently launched a taskforce to overhaul the system of checks and balances overseeing lenders. The FSC is Korea's top financial regulator that maps out financial policies. The FSS, which is under the technical control of the FSC, is a watchdog that supervises financial firms and implements policies.

Revisions to the Act on Corporate Governance of Financial Companies will also be ready by the end of March. The revisions are expected to include a clause that imposes on CEOs the responsibility of taking appropriate measures to prevent financial accidents. The boards of directors of financial companies will also be responsible for supervising management to exercise internal control measures.

The series of actions follow President Yoon Suk Yeol's emphasis made in January that the government needs to make efforts to improve corporate governance at financial firms.

"Banks provide services that serve a public function. Therefore, the government has an interest in the fair and transparent governance of banks," Yoon said on Jan. 30.

The FSC is currently looking into the corporate governance and internal control systems of global financial companies, while also examining related laws and practices in advanced global markets to come up with its own measures.

"In order to secure rationality and transparency in executive leadership and appointment processes, the FSC will overhaul the internal control systems and corporate governance of financial companies," FSC Chairman Kim Joo-hyun said in response to the president policy directive.

Problematic features

Korea's financial groups operate under a unique corporate governance system, which does not necessarily fit global...