'DLF Hongyeok' Woori Financial Group Establishes Internal Control Control Tower in Board of Directors

Establishment of 'Internal Control Management Committee' in Holding Company Board in First Half
Role in Managing and Supervising Internal Control Across All Affiliates... Expanded CEO and Shareholder Responsibility in Case of Second DLF Incident

[Asia Economy Reporter Haeyoung Kwon] Woori Financial Group is creating the first control tower within the board of directors among domestic financial holding companies to manage the internal control functions of all its affiliates. This move aims to prevent a recurrence of incidents like the derivative-linked fund (DLF) and Lime Asset Management scandals, which caused massive losses to investors. In the future, if a second DLF incident occurs within Woori Financial Group’s affiliates, including the bank, the board of directors, i.e., the CEO and shareholders, could be held accountable.

According to the financial sector on the 14th, Woori Financial Group plans to establish an Internal Control Management Committee within the holding company’s board of directors as early as April.

A Woori Financial Group official stated, "We have decided to create an organization within the board of directors to strengthen the internal control system of Woori Financial Group," adding, "We have completed reporting to the board, and after additional legal reviews and shareholder meeting approval, we plan to introduce the Internal Control Management Committee by the first half of the year at the latest."

The Internal Control Management Committee will be responsible for internal controls across 11 Woori Financial Group affiliates, including banking, card, securities finance, trust, and asset management. The internal control management and supervision functions of all affiliates will be consolidated within the board of directors, operating under a matrix system where the holding company and the entire group collaborate. This means that if an internal control issue arises in one affiliate, responsibility could escalate beyond the affiliate’s management and compliance officer to the holding company’s CEO and shareholders.

For example, if a large-scale loss incident like last year’s DLF case recurs, the holding company’s board of directors could be held responsible for the bank’s inadequate internal controls. Financial authorities might hold Woori Financial Group Chairman Sohn Tae-seung, who oversees the group’s overall internal controls, and shareholders accountable for internal control failures. Woori Financial Group is currently in the stage of drafting detailed plans through additional legal reviews.

Woori Financial Group’s initiative to establish a group-wide internal control system was largely influenced by the DLF incident. The issue expanded beyond employees’ incomplete sales to problems with the bank’s internal control system, prompting the group to devise self-rescue measures to prevent recurrence. The Financial Supervisory Service (FSS) reportedly delayed approval of Woori Financial’s acquisition of International Asset Trust subsidiary last year due to the DLF incident but granted approval at the end of the year after the group presented plans to strengthen internal controls. The FSS has consistently emphasized that financial company boards must bear ultimate responsibility for internal controls and proactively establish and operate internal control systems.

The financial sector is paying close attention to whether Woori Financial Group’s Internal Control Management Committee model will spread to other financial holding companies. Major financial groups such as Shinhan Financial Group and KB Financial Group are expanding matrix systems that consolidate the work of holding companies and affiliates to enhance cooperation, but internal control functions remain conducted at the individual company level. However, some speculate that Woori Financial Group, which appeared to be at odds with financial authorities over Chairman Sohn’s reappointment, may have taken a step back by adopting a system that strengthens CEO and board responsibility in case of internal control deficiencies.

A senior official at the FSS said, "It is a global standard for the board of directors to oversee internal controls in financial companies," adding, "It is desirable for domestic financial companies as well to have their boards take the lead in changing organizational culture and directly managing internal controls."

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