Financial Companies Not Complying with Laws... 400 Financial Sector Sanctions This Year Alone

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It has been identified that the financial authorities imposed nearly 400 sanctions on financial companies this year. Regardless of size or sector, cases of moral hazard aimed at maximizing profits have surged, raising calls for enhancing compliance awareness.

According to the Financial Supervisory Service on the 31st, the number of sanctions imposed on financial companies operating domestically over the past year was 397. Loan companies accounted for the largest number with 98 cases. Life insurance companies followed with 32 cases, then non-life insurance companies (31), asset management companies (27), and insurance agencies (28).

Most sanctions in the loan sector involved violations of basic rules such as the statutory maximum interest rate or total asset limits. Bluemoon Capital Social Loan handled loans worth 42.6 billion KRW, collecting 4.8 billion KRW in excess interest, and entered into movable collateral contracts worth 160.6 billion KRW without document requests, resulting in a fine of 16 million KRW and executive sanctions. Veritas Asset Management Loan was found to hold total assets exceeding its own capital and received a six-month full business suspension.

In the insurance industry, cases of underpayment of insurance claims, missing documents, and violations of the suitability principle were rampant. Kyobo Life Insurance received sanctions four times this year. For pension conversion contracts where payment reasons had arisen, they paid less than the policy stipulated or paid incentives to executives without deliberation and resolution by the remuneration committee, resulting in a fine of 2.422 billion KRW and sanctions on executives and employees in September.

The five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?also could not avoid sanctions. In commercial banks, many cases involved failure to comply with product sales regulations or improper management of customer personal information. KB Financial Group and KB Kookmin, Shinhan, and Woori Banks each received two sanctions, while Shinhan Financial Group, Hana, and Nonghyup each received one.

Kookmin Bank violated recording obligations when entering into stock-linked securities trust contracts, engaged in restrictive acts commonly called "kkoekgi," and improperly used personal credit information, resulting in institutional caution and a fine of about 1.1 billion KRW earlier this year. Shinhan Bank was fined 2.1 billion KRW and received an institutional warning for cases such as falsely or insufficiently reporting IT construction costs to outside directors. Hana Bank and Woori Bank were sanctioned for violating regulations prohibiting duplicate debt guarantees to affiliated companies.

Policy banks were also subject to sanctions. Korea Development Bank violated various reporting obligations, personal credit information deletion duties, and the prohibition on requiring joint guarantees for secured loans with guarantee letters, resulting in institutional and executive sanctions in September. Industrial Bank of Korea had some branches require duplicate joint guarantees amounting to 3.2 billion KRW to affiliated companies, leading to a fine of 18 million KRW.

Professor Jeon Seong-in of Hongik University’s Department of Economics advised, "The ultimate responsibility for ensuring regulations are not violated fundamentally lies with the CEO," adding, "The practice of only establishing internal control standards without responsibility for proper implementation must change to reduce moral hazard and the number of sanctions."

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