Financial Supervisory Service Holds Meeting to Strengthen Securities Firms' Internal Controls... Comprehensive Review of Accident Prevention and Reporting Systems

Significant Increase in Number and Amount of Financial Incidents
Average Annual Incidents from 2019 to 2022: 7.8 → 14 This Year

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

On the 14th, the Financial Supervisory Service (FSS) announced that it held a meeting to strengthen internal controls at securities firms and discussed risk management, vulnerabilities in internal controls, and improvement measures related to financial accidents and large-scale loss incidents.

The meeting held in the afternoon was attended by auditors, compliance officers, and Chief Risk Officers (CROs) from 36 domestic securities firms.

Hwang Seon-oh, Deputy Director of the Financial Investment Division at the FSS, stated, "The FSS regards the concealment of financial accidents by some securities firms as a very serious matter and is conducting a thorough inspection of unreported and delayed reporting cases of financial accidents. We are focusing our inspection capabilities on unhealthy business practices in the investment banking (IB) sector, such as private convertible bonds (CB) and real estate project financing (PF), and plan to continue inspections in this area next year."

He added, "This year, large-scale losses have occurred not only in the IB sector but also in the retail sector, making risk management more important than ever. Please ensure sufficient loss absorption capacity through measures such as write-offs of non-performing loans and conservative provisioning for bad debts to thoroughly prepare so that liquidity and soundness issues do not arise in securities firms."

Deputy Director Hwang also urged, "Please conduct strict due diligence on related risks when selecting and reviewing new investment targets," and added, "Actively communicate with the board of directors and audit committee regarding vulnerabilities in internal controls revealed by inspection results."

At the meeting, it was discussed that considering the trends and types of financial accidents, there is a need to comprehensively review the prevention and reporting systems of financial accidents at securities firms from the ground up. According to the FSS, the number and amount of recent financial accidents have increased significantly. From 2019 to last year, the average annual number of accidents was 7.8 cases, and the average annual amount was 14.3 billion KRW. However, this year, the figures rose to 14 cases and 66.8 billion KRW.

Furthermore, since illegal activities such as self-interest seeking have been concentrated in the IB sector, including real estate PF and corporate finance, it was also discussed that internal controls in this area must be significantly strengthened. Measures to secure sufficient loss absorption capacity and enhance risk management levels to prevent issues with the soundness and liquidity of securities firms, as well as strengthening communication with top management, were also discussed.

The FSS explained, "We have selected 'Enhancing the Effectiveness of Internal Controls at Securities Firms' as a major task for next year and plan to promote it," adding, "We will continue to closely communicate with the industry and actively cooperate to explore improvement measures together."

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