FSS Holds Workshop to Strengthen Internal Controls of Securities and Futures Firms... "Continuous Close Communication"

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

On the 19th, the Financial Supervisory Service (FSS) announced that it held a workshop to strengthen internal controls with personnel in charge of internal audit and compliance monitoring at securities and futures companies.

The workshop was held to establish an effective internal control system to eradicate the recent continuous occurrences of executives and employees pursuing private interests and improper business practices. Approximately 200 participants attended the workshop, including internal audit and compliance officers from 60 securities firms and 3 futures firms, as well as representatives from the Korea Financial Investment Association.

In particular, major issues such as the real estate project financing (PF) performance-based compensation system, wrap and trust sales practices, and private interest-seeking behaviors were shared and in-depth discussions on strengthening internal controls were conducted. Regarding the inspection results and precautions related to the real estate PF performance-based compensation system, the FSS explained, "We enhanced the industry's understanding of the system through explanations of laws and guidelines related to the performance-based compensation system," and added, "We shared cases requiring improvement identified during the inspection and guided key precautions to encourage the operation of a performance-based compensation system linked to long-term performance."

Additionally, the causes and patterns of violations found in the inspection of bond-type wrap and trust management practices were shared, urging efforts to strengthen independent management of accounts and prevent conflicts of interest to restore the original functions and roles of wrap and trust products. Guidance was also provided to improve the qualitative level of internal controls through controlling abnormal transaction prices and managing redemption liquidity risks.

Discussions were also held on major pointed cases and precautions related to private interest-seeking behaviors. The FSS shared cases revealed through securities firm inspections, such as profit appropriation through false or fabricated contracts, use of undisclosed insider information, and improper influence exertion, emphasizing the importance of internal controls and the need to strengthen internal controls for team-based work organizations composed of the same members over a long period to prevent private interest-seeking behaviors. They also urged active efforts such as enhancing education for executives and employees handling tasks with frequent opportunities to acquire undisclosed information.

An FSS official stated, "We plan to continue expanding information exchange and maintaining close communication to provide practical assistance in strengthening internal control capabilities in the securities industry in the future."

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