FSS calls for 'bold overhaul' of Korea's banks after Woori employee embezzles $7 million

The head of Korea's financial watchdog called for a “bold overhaul” of corporate culture at banks following an embezzlement scandal at Woori earlier this month.

Financial Supervisory Service Gov. Lee Bok-hyun, right, and Woori Bank CEO Cho Byung-kyu attend a meeting between the financial regulator and chief executives of domestic banks in central Seoul on Wednesday. [NEWS1]

The head of Korea's financial watchdog called for a “bold overhaul” of corporate culture at banks and issued a strong warning over a series of internal control failures in the financial sector in a meeting with top bankers Tuesday.

The chief of Woori Bank, which was recently embroiled in a major embezzlement scandal, publicly apologized for the incident the same day.

“Improper sales of financial products including DLF [derivative-linked funds], private equity funds by Lime Asset Management and Hong Kong-tied ELS [equity-linked securities] occurred repeatedly over the past few years,” said Financial Supervisory Service (FSS) Gov. Lee Bok-hyun in his opening remarks during the meeting.

“Even recently, an embezzlement case involving falsified documents emerged, further fueling criticisms over unethical behavior and lacking internal control systems at banks,” said Lee, referring to a Woori employee's embezzlement of 10 billion won ($7.24 million) that was revealed in June. The employee, who is alleged to have forged loan applications to embezzle funds earlier this year, turned themselves in to police on June 10 after the bank detected their abnormal activity.

The governor stressed that such financial incidents “are very severe matters that may shake the very foundation on which banks exist,” adding that “It is imperative to take a bold step to change the corporate culture [at banks] in order to have compliance and ethics codes embedded deeply into all of sales and internal control activities conducted by every employee and executive.”

Lee pointed out that the Hong Kong-tied derivatives incident was caused by corporate culture at banks, which put too much emphasis on short-term performance and gains.

The FSS plans to come up with a new regulatory measure to encourage banks to overhaul their corporate culture at banks, according to the governor.

The meeting was held at the Korea Federation of Banks headquarters in Jung District, central Seoul, on Wednesday, with chief executives and representatives of 20 domestic banks in attendance.

Ahead of the meeting, Woori Bank CEO Cho Byung-kyu told press, “I sincerely apologize for the concerns [we have] caused for our customers and the public,” promising to implement preventive measures.

Meanwhile, the FSS chief said that “the plan is to hold [Woori Bank], including the main branch, accountable for the embezzlement, to the full extent permitted by the current regulations if needed.”

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]