Financial Supervisory Service to Conduct On-site Inspection of Special Promotion Management System in Mutual Finance Sector in January Next Year

[Asia Economy Reporter Song Hwajeong] Amid recent incidents of excessive sales caused by cooperative errors during special high-interest deposit promotions in mutual finance sectors, the Financial Supervisory Service (FSS) announced that it will conduct on-site inspections of the special promotion management system in mutual finance sectors in January next year.

On the 14th, the FSS held a meeting to review the internal control status of high-interest special promotions in mutual finance sectors and made this announcement.

During the meeting, the FSS urged each mutual finance central association to strengthen internal controls related to deposits and savings and discussed improvement measures.

The FSS emphasized that although deposit and savings interest rates are generally determined autonomously by individual cooperatives, swift establishment of a central association-level internal control system to prevent recurrence is necessary to ensure that employee errors or excessive deposit competition beyond the cooperative’s management capacity, as seen in this incident, do not lead to deterioration of cooperative soundness or consumer harm.

Furthermore, the FSS requested systematic management led by the central association, as excessive competition to attract deposits and savings could raise market concerns about liquidity and soundness in the mutual finance sector.

The central association decided to improve the system so that when a cooperative sells deposits or savings at interest rates above a certain level, it must register in the special promotion management system in advance and allow the central association to inspect it. Additionally, the system will set sales limits for deposits and savings, and automatically restrict additional sales if the limit is exceeded to prevent similar incidents.

The FSS plans to conduct on-site inspections in January next year to verify whether the central association’s system is operating properly once the improvements to the special promotion management system are completed within this month.

Recently, three regional Nonghyup branches and one Shinhan Credit Union sold high-interest savings deposits with annual rates of 8-10%, leading to an overwhelming influx of funds that made it difficult to cover the interest payments, resulting in requests for contract cancellations from customers. In response, the FSS ordered the entire mutual finance industry to inspect their special promotion systems.

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