FSS chief tells bank holding heads to drop favoritism in CEO picks

Financial Supervisory Service Director General Lee Chan-jin has called on the heads of banking holding companies to set aside factional ties and personal relationships when appointing subsidiary CEOs, urging merit-based selections instead. With succession procedures for more than 70 subsidiary CEOs — including bank presidents — set to proceed in the second half of this year, Lee said fairness and transparency must be upheld at every stage, from drawing up candidate pools to verification and evaluation.

Lee met with the Korea Federation of Banks chairman and the heads of eight banking holding companies at the FSS headquarters in Yeouido, Seoul, on Wednesday, telling them to "make every effort to identify the most qualified candidates based on ability, without being swayed by factional affiliations or personal closeness."

Lee said holding companies must establish specific standards governing the entire succession process — including candidate pool selection, verification and evaluation, and record-keeping — to raise fairness and transparency. He particularly said that holding companies' subsidiary CEO candidate recommendation committees must guarantee the substantive role of their counterpart nomination committees at the subsidiary level during the candidate recommendation and selection process.

In practical terms, he said holding companies should provide subsidiary nomination committees with sufficient information, including standing candidate pools, and ensure that committee members' views are reflected during the evaluation process. More than 70 subsidiary CEO appointments, including bank presidents, are scheduled for the second half of this year.

Lee also expressed concern about excessive competition in bidding for local government treasury accounts. He said the practice of well-capitalized banks winning treasury mandates through aggressive cooperative project spending could be seen as unfair competition, and asked banks to also consider the circulation of funds within local economies and balanced regional development. He added that the FSS would closely examine whether banks had sufficiently analyzed the impact of future cooperative project expenditures on their soundness and profitability.

Lee also called for stronger internal controls to prevent financial misconduct. Incidents at banks rose from 33 cases involving 69.69 billion won ($50.3 million) in 2023 to 47 cases involving 170.82 billion won in the first seven months of this year alone. He said the recent increase has been driven not only by misconduct involving internal staff but also by external fraud — including forged income and employment certificates, inflated collateral valuations and fraudulent pre-sale contracts — as well as incidents centered on overseas branches.

"No regulatory improvement will mean anything if sufficient personnel and resources are not committed to strengthening internal controls," Lee said, urging banks to secure adequate staffing and resources to make internal controls function in practice. The FSS plans to examine the root causes of any future violations, including whether performance and compensation systems were appropriate and whether the organization itself created incentives for misconduct.

Meanwhile, financial holding companies have begun revising their own procedures following the financial regulator's call for governance improvements. BNK Financial Group and Shinhan Financial Group recently overhauled their succession processes to expand the role of subsidiary nomination committees. Shinhan Financial shared information on subsidiary CEO candidate pools with its banking unit's nomination committee and granted it the authority to recommend candidates. BNK Financial similarly gave its banking unit's nomination committee candidate recommendation rights, and made it possible for the committee to receive candidate information at each stage and observe final interviews.