South Korea’s top financial watchdog said Monday that the local banking giants should seek more transparency in how they elect their chief executives, a week after the Financial Supervisory Service’s disciplinary move against one of the chiefs over “junk funds.”

The chief of Woori Financial Group -- one of the five biggest banking groups -- is now banned from holding a job in finance for up to five years as part of punishment for having sold funds the regulator says should have been shut down to protect retail investors. The asset manager that operated the funds is defunct and Woori Bank is suspended from offering new private equity funds for three months.

“Voting on a professional -- someone with expertise and a strong moral compass -- is the No. 1 job for the board of directors,” Gov. Lee Bok-hyun of the FSS said at a meeting with the banking giants. The leaders from eight financial groups, including KB Kookmin, Shinhan, Hana, Woori and NongHyup, took part in the gathering.

“And to see that take place in a transparent, equitable manner is the pressing task.”

Lee also doubled down on toughening up internal compliance at financial institutions. Early this month, his agency set new rules like increasing compliance staff and reducing staff that do not get rotated out as often as other employees to boost peer-to-peer oversight.

The change is meant to avoid a repeat of the latest scandal involving a Woori Bank employee who allegedly stole at least 61 billion won ($46 million) from the lender. The employee and his brother, who does not work there, are standing trial.

“The fact is that we just can’t let the chief executives run the internal checks by themselves. The board of directors should step up,” Lee said, referring to checks and balances that he described as “pivotal” in bringing about a “healthy work environment.”

Appointing independent outside directors is just as crucial to that end, Lee added, stressing that those directors should be entirely independent in what they do. Outside directors at some of the top financial companies have long been accused of being rubber stamps that toe the line of chief executives.

Along with enhanced independence, “diversity in backgrounds” is another antidote to such cronyism, Lee said.

Meanwhile, Lee encouraged the banking giants to keep liquidity ample to ride out the fallout from rising interest rates. Higher borrowing costs -- backed by the Bank of Korea in line with a global push to tighter policy -- are increasingly weighing on businesses and households.

Households in particular are worrisome because the sharp rise in household debt is raising a red flag. According to the Institute of International Finance, the debt made up 102.2 percent of Korea’s gross domestic product as of the second quarter this year. That is the highest among 35 major economies.

But the top financial watchdog maintains the level is well under control, with Lee contending that banks could weather tightening financial conditions. Agency assistance will be extended to any institutions asking for it, Lee says.