Regulator focuses on enhancing independence of groups’ units


Regulators are moving to scale down the authority of major financial group chairmen, saying the current system provides them with “excessive” power to control all of their groups’ units.

“The direction would be focused on enhancing the independence of financial groups’ subsidiaries by tackling chairmen’s authority,” said an official of the Financial Supervisory Service.

Among the major groups are KB Financial, Woori Financial, Shinhan Financial, Hana Financial and KDB Financial.

According to FSS officials, some financial group chiefs have been intimately concerned with personnel policies and management of subsidiaries such as banks and brokerage firms.

In the case of one financial group, its chairman has in effect taken the role of banking unit CEO and the group’s real bank CEO could be regarded internally as a vice president.

The FSS is also set to closely monitor the current practice dictating that subsidiary CEOs take final responsibility after group chairmen initiate units’ competition in performance or business expansion.

The regulatory policy reflects the view that chairmen have led their groups to excessive competition in order to expand businesses among banking or credit card units.

To downscale their authority, the FSS plans to propose a law revision in coordination with the Financial Services Commission, the decision-making regulatory panel.

A representative case of a group chairman exercising great power is Shinhan Financial. Its former chairman Ra Eung-chan was eventually pressured to resign amid allegations that he had abused his rights and engaged in irregular practices.

Current chiefs of major financial groups are directing banking M&A strategies or manpower restructuring.

An incumbent chairman has been under criticism for raising a large portion of M&A funds from banking and brokerage units.

“It seems that the primary goal of several financial group chairmen is to boast of their capability by making M&A deals, not by raising profitability,” a local banker said.

In addition, regulators have continued to warn that excessive banking expansion via active loan issuances ― pushed by financial groups ― could lead to another financial crisis.

The heated race to expand loan assets, which sometimes comes at the cost of bank earnings, is feared to deal a heavy blow to banks’ profitability and drive up chances of potential bankruptcy, an FSS official said.

The FSS is ratcheting up oversight of the heated rivalry for external growth by instructing banks to push for higher risk management on loan issuance.

By Kim Yon-se (kys@heraldcorp.com)