Korean banks promise ethics but deliver problemsJuly 2014
South Korea’s financial regulator, the Financial Supervisory Service (FSS) has said it will take steps to clean up the industry after recent ethical problems involving the major banks.
The FSS is investigating allegations of embezzlement involving the KB Kookmin Bank, the largest bank by both asset value and market capitalization in South Korea.
According to the FSS, a bank employee colluded with a company owner and opened an account under a false name to help the owner embezzle money. A spokesman at the bank said the employee involved no longer works there.
The Kookmin’s current problems come less than six months after it pledged to uphold a new ethics code. Last year, the bank was in trouble for leaked data, embezzlement, fake documents, false reporting, and illegal loans.
Woori Bank, Korea’s second largest, is in trouble in New York where female employees are suing the bank over allegations of sexual harassment and assault by an executive transferred there from Korea.
More wrongdoings have recently occurred at Korea’s third largest, the Shinhan Bank. Earlier this year, a bank employee stole a customer’s deposits to finance a gambling habit. Management discovered the scheme and reported it to the FSS.
“Ethical discipline at banks has been seriously loosened,” said a government official in a newspaper interview.
This July, the FSS will start a thorough investigation into the root causes of the recurrent problems at both the KB Financial Group and its KB Kookmin Bank.
This is the first time for the FSS to take a thorough look into a financial company’s overall business operations. The FSS says it will show “zero tolerance” towards KB’s continued failures.
The financial authority has also said it plans to tighten supervision of all banks, including provincial ones, and demand stronger ethics education.
The Hana Bank is one of an increasing number of banks saying that it will be reviewing and reforming in-house controls. The bank also said it would set up systems to detect and analyze irregularities in electronic financial transactions and a special centre that will investigate potential damage caused by irregular transactions. Other banks are making similar moves.
The FSS said that it would toughen disciplinary measures on employees or firms involved in the theft or misuse of data, fraud, or irregularities from the end of June. This will involve punitive measures for any irregularities that can disrupt the market order or breach consumers’ rights.
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