To Prevent Recurrence of Lime and Optimus, Financial Institutions Must Be Imposed with 'Internal Control Obligations'

Discussion Hosted by Rep. O Gi-hyeong of the Democratic Party
"Must Define Itself, Not Just a Limited Concept"

Oh Ki-hyung, Member of the Democratic Party of Korea / Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Kiho Sung] Last year, following a series of private equity fund incidents such as the Lime Asset Management and Optimus Asset Management fund redemption suspension cases, there have been calls to impose ‘internal control obligations’ on financial companies. It was pointed out that the internal control standards should be defined as ‘internal regulations or guidelines that set forth necessary matters for internal control operations’ to prevent misunderstandings that limit it solely to compliance (legal and procedural adherence).

On the 16th, Lee Sang-hoon, director of the Financial Economy Research Institute, attended the forum titled ‘How to Secure Effectiveness of Internal Control in Financial Institutions’ held at the National Assembly and made this argument through his presentation on ‘Institutional Improvement Measures for Enhancing Internal Control in Financial Companies.’ Lee emphasized, “To faithfully impose internal control obligations on financial companies, it is appropriate to define internal control itself, not just the limited concept of internal control standards, in the highest-level law,” adding, “Financial companies must be imposed with the literal ‘internal control obligation.’”

He cited the first trial ruling on the disciplinary action against Sohn Tae-seung, chairman of Woori Financial Group, related to the ‘incomplete sales of overseas interest rate-linked derivative-linked funds (DLF) by Woori Bank.’ He explained that Article 24, Paragraph 2 of the Financial Company Governance Act, which states, ‘Detailed matters to be stipulated in the internal control standards and other necessary matters shall be prescribed by Presidential Decree,’ should be revised more specifically.

Lee said, “From a legal perspective, the biggest problem with the first trial ruling was the distinction made between ‘statutory matters’ and other matters in the obligation to establish internal control,” and added, “Although it is an unfair ruling, to avoid controversy, the phrase ‘other necessary matters’ should be deleted from the current law.”

He also mentioned that the Governance Act’s ▲ enforcement decree should consider strengthening the board of directors’ responsibility and supervision and inspection of internal control, enhancing internal audits, ▲ preventing attempts to evade responsibility through delegation of authority, and ▲ system improvements. Furthermore, he stated that the Financial Consumer Protection Act (FCPA) should also be improved by ▲ specifying internal control obligations, ▲ avoiding overlap between laws, and ▲ enhancing additional internal control requirements for financial investment firms.

Oh Ki-hyung, a member of the Democratic Party who hosted the forum, said in his opening remarks, “The first trial ruling on Chairman Sohn recognized the Financial Supervisory Service chief’s sanction authority and the bank president’s supervisory responsibility but ruled that responsibility cannot be imposed if formal internal control standards are established,” and proposed, “The internal control system must be promptly reorganized to prevent financial accidents in advance.”

Meanwhile, after the presentation at the forum, a related discussion took place with Professor Jeon Sung-in of Hongik University as the chair, along with Director Lee, Ham Yong-il, Director General of Supervision at the Financial Supervisory Service, Lee Kwang-jin, head of legal support at the Korea Federation of Banks, and Song Ji-min, investigator at the National Assembly Legislative Research Office.

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