99% of bank holding company board agenda items pass as proposed

Of the 993 agenda items brought before the boards of eight bank holding companies last year, 983 (99.0%) were approved as originally proposed. Only 9 items were approved after revisions, and only 1 was put on hold.

Financial Supervisory Service (FSS) Governor Lee Chan-jin held a regular meeting with the board chairs of the eight bank holding companies at the FSS in Yeouido, Seoul, on the morning of the 28th and said, "It is very rare for outside directors to vote against an agenda item, and there were cases where significant matters were not sufficiently reviewed at the board level." He was pointing to the practice in which outside directors have in effect rubber-stamped decisions made by management. Lee asked them "not to rely only on materials provided by management, but to review agenda items in depth through active requests for materials and the use of outside experts, and thereby fulfill directors' duty of loyalty."

He also named raising the capabilities of outside directors as a task. "I hope you will strive to strengthen outside directors' expertise and capabilities by providing systematic training," Lee said, adding, "On key management issues such as business diversification and executive compensation and evaluation (KPIs), too, please make decisions that serve the long-term interests of the company and shareholders."

He also put weight on the fairness of the selection process for subsidiary CEOs (chief executive officers), which is approaching at the end of the year. "I understand that the succession process for financial holding company subsidiary CEOs is now in full swing," Lee said. "I urge you to fully reflect the intent of the governance improvement measures and further strengthen the transparency and fairness of the subsidiary CEO succession process."

On the string of hacking incidents hitting the financial sector, he stressed that boards should take the lead in security investment. By the 14th, 16 financial companies, including banks, savings banks, mutual finance institutions and specialized credit finance companies, had suffered breaches, and the attacks are spreading to non-core facilities such as business support systems. "The practice of treating IT security as an ancillary task and formally complying only with regulatory requirements, or of regarding IT security investment as a 'cost' and failing to commit sufficient staff and resources, must not be repeated any longer," Lee said, asking, "Please take the lead in boosting IT security capabilities at the board level."

He also took the position that social contribution should be judged by substance rather than scale. Banks' social contribution spending rose to 2.16 trillion won last year from 1.89 trillion won the year before, and the five major financial holding companies are pursuing plans to expand inclusive finance by about 70 trillion won over the next five years. But Lee pointed out that it is not enough to stop at increasing the amount of support. He judged that 'social washing,' in which sponsorship fees for local government events aimed at winning bids for municipal treasury contracts, labor costs for call center staff handling voice phishing responses, and even event costs for attracting customers are counted as social contribution results, is nothing more than showy activity.

He also raised the problem of financial exclusion caused by branch closures. The number of domestic bank branches was 5,517 at the end of last year, down 314 (5.3%) from the end of 2022. "When making decisions on branch operations, please consider consumers' access to financial services along with efficiency," Lee said. "For the elderly and financially vulnerable, the closing of a nearby branch can be more than a simple inconvenience; it can mean being pushed away from financial services."

He also asked them to tighten oversight of incidents at overseas branches. Financial incidents at overseas branches of domestic banks numbered 7 in 2024 (150 million won) but rose sharply to 12 last year (124.9 billion won), and 11 (84 billion won) have already occurred in January-September this year alone. Lee called for head office-level integrated IT systems, regular inspections and a revamped incident reporting system, and said internal control and risk management capabilities must actually be reflected in personnel decisions and performance evaluations. Examples cited included offering incentives so that capable staff gather in compliance and risk management departments, or building internal control capabilities into personnel criteria.

The FSS plans to check whether systems it has already introduced, such as the internal control innovation plan, the loan process improvement plan, the responsibility structure map and the plan to promote compliance whistleblowing, are working on the ground, and to keep fixing shortcomings. "As a partner of the financial industry, the FSS will communicate closely with the market and spare no necessary institutional support," Lee said.