FSS: "Samsung Financial Affiliates Need to Improve Internal Controls"

Lack of Dedicated Departments... Poor Task Allocation Among Responsible Personnel

The Financial Supervisory Service (FSS) has requested improvements in internal controls from the Samsung financial conglomerate, which consists of Samsung Life Insurance, Samsung Fire & Marine Insurance, Samsung Card, and Samsung Securities. This is due to insufficient application of various standards and inadequate reflection in internal regulations.

According to industry sources on the 26th, after recently inspecting the Samsung financial conglomerate, the FSS notified six management cautions and eight improvement items on the 14th. This was based on the judgment that there is a need to strengthen internal controls and crisis management systems, as well as improve joint investment reporting and management tasks. Management cautions and improvement items are administrative guidance measures that require financial companies’ attention or voluntary improvement.

Specifically, the FSS pointed out that the scope of application of standards for internal control and risk management and their reflection in internal regulations are insufficient. Among the total 37 affiliated financial companies (16 domestic and 21 overseas), only some apply group-level internal control and risk management standards.

It also criticized the need to establish separate personnel. According to the FSS, even after the enforcement of the "Act on the Supervision of Financial Conglomerates," the Samsung financial conglomerate performed internal control tasks at the financial conglomerate level without a dedicated organization, with Department A of Samsung Life Insurance, the representative financial company, concurrently handling these duties. Although Department B was newly established in November 2021 and additional personnel were assigned, by the time the FSS began its inspection, the authority and responsibility of the new organization had not been reflected in the representative financial company’s internal regulations. Some dedicated personnel were still concurrently handling Department A’s tasks at Samsung Life Insurance. Considering that one of the dedicated employees is a manager (center head), the actual dedicated workforce is insufficient relative to the scale.

The FSS also pointed out that despite internal transactions, joint investments, and joint product development among financial affiliates, the inspection scope of Samsung Life Insurance, the representative financial company, was limited to agenda items submitted to the boards of directors of major affiliated financial companies. Along with this, it demanded improvements in early warning systems and integrated crisis situation analysis.

It emphasized the need to clarify the division of duties for compliance officers and others. The FSS explained, "Although the head of the dedicated internal control and risk management department in the financial conglomerate is the top person responsible, with compliance officers giving final approval on internal control tasks and risk management officers on risk management tasks, the division of duties for compliance officers and risk management officers related to financial conglomerate tasks is not reflected in the internal regulations of the representative financial company or at the financial conglomerate level."

Additionally, it requested improvements in verifying submitted materials when calculating capital adequacy ratios, enhancing joint investment reporting and management tasks, and organizing the internal transaction management system.

Meanwhile, the financial conglomerate system applies to corporate groups operating two or more financial companies with assets exceeding 5 trillion KRW. It requires establishing a risk management system centered on the representative financial company and managing the soundness of the entire financial group.

The representative company of the Samsung financial conglomerate is Samsung Life Insurance, with assets of 495.2 trillion KRW as of the end of 2021. Besides Samsung, seven other groups including Hanwha, Hyundai Motor, Mirae Asset, Kyobo, DB, and Daou Kiwoom Group are designated.

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