"Daegu Bank Illegal Accounts 1,662 Cases"... Financial Accident Caused by Performance Competition

Financial Supervisory Service to Announce 'Daegu Bank Financial Accident Inspection Results' on the 12th
Will Hold Accountable for Negligence in Internal Controls to Enforce the Real Name Financial Transactions Act

The Financial Supervisory Service (FSS) announced regarding the financial incident in which Daegu Bank improperly opened 1,662 accounts without customer consent, stating, "The FSS will strictly hold the responsible parties and related employees accountable for violations of the Real Name Financial Transactions Act and negligence in internal controls. Additionally, a separate inspection will be conducted on the overall supervisory functions of subsidiaries under regional financial holding companies."

On the 12th, the FSS released the 'Daegu Bank Financial Incident Inspection Results.' Through an on-site inspection of Daegu Bank from August 9 to September 22 this year, the FSS confirmed that the bank improperly opened 1,662 securities accounts using copies (printouts) of application forms that customers had not personally signed. This incident occurred as Daegu Bank launched the 'Multiple Securities Account Opening Service' in August 2021, encouraging account opening performance but failing to establish effective internal control measures to prevent illegal and improper activities.

The employees involved abnormally opened additional securities accounts by printing out securities account application forms from Securities Company A, which customers had electronically signed, before final processing and using them as application forms for Securities Company B. Some employees also changed customer contact information to false contacts, resulting in 32 cases where customers did not receive notifications about the securities account openings and related terms from the securities companies.

The FSS identified performance competition within Daegu Bank and insufficient internal controls as the background of this incident. To increase non-interest income, Daegu Bank launched the 'Multiple Securities Account Opening Service' in August 2021 and expanded the reflection of securities account opening performance in branch KPIs and individual employee performance. This service allows customers to open multiple securities accounts linked to one Daegu Bank deposit account.

The FSS stated, "In 2022, the criteria for full marks on securities account openings in branch core performance indicators (KPIs) were strengthened (from 1 account per customer to 2 accounts), and this was also reflected redundantly in individual performance, which is believed to have incentivized improper securities account openings." However, internal controls were inadequate. The FSS pointed out, "There were no effective internal control measures such as work procedures, IT controls, or post-inspection standards to prevent illegal and improper acts related to securities account opening operations."

The FSS added, "The Financial Supervisory Service will strictly hold accountable the employees responsible for this incident and related negligence in internal controls according to relevant laws and regulations. Furthermore, necessary measures will be taken against the failure to promptly report the violation of the Real Name Financial Transactions Act to the FSS."

Daegu Bank received complaints about arbitrary securities account openings on June 30 this year and conducted an internal inspection targeting all branches from July 12. However, due to the time required to verify the incident details, the bank did not report it to the FSS until the FSS inspection began on August 9.

The FSS plans to conduct a separate inspection of the overall supervisory functions of subsidiaries under regional financial holding companies in relation to recent consecutive financial incidents at regional banks.

Meanwhile, Kim Ju-hyun, Chairman of the Financial Services Commission, stated that the 'illegal customer accounts' financial incident will be taken into account when reviewing Daegu Bank's application to convert into a commercial bank. At the National Assembly's Financial Services Commission audit on the 11th, when Kim Seong-ju, a member of the Democratic Party, asked whether the various misconducts of Daegu Bank should be considered in deciding its conversion to a commercial bank, Kim said, "It can be considered during the review process."

Chairman Kim added, "When applying for conversion to a commercial bank, the law requires reviewing the feasibility of the business plan, soundness, and suitability of major shareholders. These aspects will be considered during the review process for Daegu Bank's commercial bank conversion."

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