Lee Chan-jin (이찬진), governor of South Korea's Financial Supervisory Service, met chairmen of bank holding companies and pointed to concerns about fairness in procedures to appoint subsidiary chief executives and excessive competition in municipal treasury bidding. He also urged stronger internal controls to prevent financial incidents.

The Financial Supervisory Service said on Tuesday that Lee held a meeting at its headquarters in Seoul's Yeouido with the chairmen of eight bank holding companies and the chairman of the Korea Federation of Banks to discuss key issues in the financial sector and future responses.

Lee stressed that the financial sector should handle its work under fair principles as financial market volatility could rise in the second half of this year due to shifts in the global monetary policy stance and as procedures move ahead to appoint CEOs at about 70 subsidiaries, including bank chiefs.

He urged banks not to be bound by specific factions or personal ties in appointing subsidiary CEOs and to select suitable candidates based on capability. He also stressed the need to set specific standards for succession procedures spanning candidate selection through verification, evaluation and record-keeping, and to ensure subsidiary executive nomination committees play a substantive role.

He also voiced concern about the situation in which excessive competition among banks emerges in municipal treasury bidding. He said a system in which banks with greater capital secure treasury operating rights through competition over cooperation project funds could be seen as unfair competition.

Lee urged banks to also consider local fund circulation and balanced regional development in municipal treasury bidding. The watchdog plans to examine whether banks decided on spending for cooperation projects after sufficiently analysing its impact on soundness and profitability.

Strengthening internal controls to prevent financial incidents was also presented as a key request. That reflected an assessment that recent financial incidents are increasing not only from internal employees but also from fraud by outsiders and at overseas branches.

Lee called on bank holding companies to secure sufficient personnel and resources to strengthen internal controls. He also urged a corporate culture and responsible execution so internal controls can work in practice.

The watchdog said that if misconduct occurs in the future, it plans to check fundamental problems, including whether evaluation and compensation systems are appropriate and whether there are organisation-wide incentives.

Chairmen of bank holding companies also said they will re-examine the need to improve procedures for appointing subsidiary CEOs and will allocate sufficient personnel and resources to prevent financial incidents.

In opening remarks, Lee said, "Without the trust of the market and the public, the financial industry cannot exist." He added, "Before making important management decisions, I hope you will once again consider the enormous influence financial companies have on our country's financial industry and their social responsibility."