FSS pledges to get down to root of KB Financial feud

By Korea Herald

Watchdog plans thorough inspections as warning to entire financial sector

  • Published : Jun 16, 2014 - 21:23
  • Updated : Jun 16, 2014 - 21:23
Financial authorities will be more closely looking into the embattled KB Financial Group’s internal control system in a head-to-toe inspection that may spell out additional sanctions for the company’s troubled leadership.

The Financial Supervisory Service, after wrapping up ongoing disciplinary actions on financial organizations, will initiate the probe into KB Financial and KB Kookmin Bank in July, according to officials on Monday.

The unprecedented hardline stance from the government watchdog is now being perceived as a reflection of the administration’s determination to root out the practice of habitually planting former government officials at top financial executive posts, and to demonstrate the consequences of moral hazards.

“The key purpose of the inspection is not to look for additional fault or to punish the corresponding organization, but to get a diagnosis of the current situation and try to come up with preventive measures,” said one FSS official close to the matter.

He added that the probe would look into not only the latest feud between the KB Financial and KB Kookmin Bank chiefs, but the recent data leaks and fraudulent loan schemes as well. 
Choi Soo-hyun, governor of the Financial Supervisory Service. (Lee Sang-sub/The Korea Herald)

Lim Young-rok, chairman of KB Financial Group. (Bloomberg)

Going back a bit, KB Financial ― one of the nation’s top four financial holding firms ― had just started to recover from a data leak scandal when it was turned upside down due to the escalating internal conflict at the leadership level.

Last week, the FSS effectively decided to hand down heavy sanctions on KB Financial Group chairman Lim Young-rok and KB Kookmin Bank president Lee Kun-ho. They were held responsible for a series of irregularities including the disputes over the replacement of bank’s computer system.

Though the two will be given a chance to explain themselves by the FSS disciplinary committee next week, the sanctions are considered to be final as the FSS governor has repeatedly called for “zero-tolerance” in regards to the KB feud.

Considering that aside from the feud, other business crises, such as one involving a customer information leak, were partly due to the former KB Financial leadership, observers are interpreting the watchdog’s moves as a warning not only to KB, but to all financial companies.

“The government is basically saying, this is what will happen should you continue to dabble in moral hazard,” said one industry watcher, declining to be identified.

Also, it may be part of upholding the administration’s pledge to eradicate the long-standing custom of appointing former government officials to high-ranking posts at financial organizations.

“I will not appoint former public officials to chief and auditor posts,” said President Park Geun-hye last month, while announcing reform-measures in response to the Sewol ferry sinking.

Chairman Lim and bank president Lee, who respectively were formerly the finance vice minister and senior researcher at a key state-run institute, are often quoted as examples of such government-influenced personnel actions.

By Bae Hyun-jung (