Despite Losses in Financial Investment Products... 'Financial Holding Matrix' Fails to Turn on Warning Lights (Comprehensive)

A WM Executive at a Financial Holding Company Holds Concurrent Positions in Banking and Securities... Emphasizes Collaboration Only During Product Sales
Matrix Shows Positive Synergy Among Affiliates but Fails in Risk Management and Internal Controls

[Asia Economy Reporter Kwon Haeyoung] The matrix system operated by major domestic financial holding companies has been pointed out as a cause of recent consecutive financial investment product loss incidents, such as overseas interest rate and real estate-linked derivative-linked securities (DLS) and Lime Asset Management funds. The matrix organization, which emphasizes collaboration among affiliates led by the holding company, is actively operated only during product sales but fails to function properly in risk management and internal control, raising calls for improvements to the matrix system.

According to the financial sector on the 23rd, the four major financial holding companies?Shinhan, KB, Hana, and Woori Financial?have all introduced matrix systems in their wealth management (WM) divisions. Holding company WM executives concurrently serve as bank and securities WM executives, overseeing overall functions.

The matrix organization refers to grouping businesses that were separately operated by each affiliate into units integrated and managed by the holding company. This aims to strengthen collaboration among affiliates and drive initiatives at the holding company level. The trend is expanding into investment banking (IB), retirement pensions, global, and digital sectors, with matrix functions prominently featured in the WM divisions of major holding companies.

A financial sector official said, "Looking at recent financial investment product loss incidents, a characteristic is that bank customers heavily invested in risky products mainly sold by securities firms," adding, "While the holding company actively drove sales efforts, it failed to play a role in risk management and internal control."

An example is the German Heritage DLS, which Shinhan Financial Investment sold extensively, causing losses to investors. This product, investing in German cultural heritage development projects, was mainly sold at Shinhan PWM Centers, which are hybrid bank-securities branches. Although Shinhan Financial Investment was the seller, internal data shows that Shinhan Bank customers invested 211.1 billion KRW (637 people), exceeding the 169.1 billion KRW (886 people) invested by Shinhan Financial Investment customers. This was because bank private bankers (PBs) connected customers to securities PBs for sales. According to financial sector sources, this trend is also prominent in other financial groups as they strengthen matrix functions.

A representative from a commercial bank explained, "When bank employees guide customers to securities firms within the same group to sell products, both bank and securities employees receive credit for the performance," adding, "While the intention is to provide various products as customer investment demands diversify, it also leads to overheated sales driven by the goal of expanding non-interest income."

On the other hand, risk management at the financial group level is evaluated as inadequate. The recent resignation of the CEO of Shinhan Financial Investment and the decision to provisionally pay half of the principal to investors of the German Heritage DLS are interpreted as reflecting concerns at the holding company level.

Within the financial sector, there is broad agreement on the necessity and positive functions of matrix organizations under the financial holding company system. For example, when entering overseas markets, business cooperation among affiliates such as banks, card companies, securities firms, and insurers can be strengthened, and comprehensive services can be provided in retirement pension businesses through operators and sellers. The problem lies in holding companies emphasizing sales promotion when strengthening matrix organizations but relatively neglecting group-level risk management that follows.

Some voices suggest that holding companies should strengthen matrix functions not only in product sales but also in risk management and internal control. After suffering investor losses from the sale of derivative-linked funds (DLF) by banks last year, Woori Financial Group recently established an Internal Control Management Committee within its holding company board.

A financial sector official said, "While it is necessary to enhance group capabilities by improving synergies among affiliates such as banks, securities, and insurance at the holding company level, it is urgent to establish a system that can strengthen risk management and internal control across the entire group," adding, "Financial authorities also need to inspect risks at the financial group level, not just individual banks and securities firms, and order comprehensive risk management reinforcement."

This content was produced with the assistance of AI translation services.