On March 25, 2025, Lee Se-hoon, Deputy Governor of the Financial Supervisory Service (FSS), held a briefing addressing the concerns surrounding Woori Financial Group's proposed acquisition of an insurance company. The briefing was a response to earlier discussions held on March 11, where issues surrounding internal controls and risk management within Woori Financial Group emerged.
The FSS emphasized that the approval of Woori Financial's acquisition will largely hinge on the company's commitment to enhancing its internal control systems and organizational culture. "Woori Financial Group has faced scrutiny regarding whether expanding their footprint is indeed appropriate. The focus now shifts to how they will modify their internal control procedures and the organizational culture that supports them," Lee stated during the briefing.
According to Lee, the overall evaluation from a recent inspection indicated that Woori Financial's internal control system meets basic compliance requirements, but significant shortcomings persist. He clarified that these deficiencies have been identified historically and stressed the importance of developing a plan to bolster these controls moving forward.
"Our assessment has shown that their internal controls are often perfunctory and inadequate," said Lee. "However, this understanding reflects a previous timeframe, and it's crucial that we now see tangible improvements in practical terms."
In the subsequent evaluations, Woori Financial was notified of a downgrade in their performance rating from 2 to 3 due to these identified deficiencies. The FSS has communicated this downgrade and underlined its intention to work collaboratively with the Financial Services Commission (FSC) to review any documents submitted by Woori Financial regarding their subsidiaries.
As part of the process, Woori Financial has provided their management performance evaluation and improvement plans to the FSC, asserting their desire to reform and enhance operational efficiencies. A final decision regarding the approval of the acquisition will consider these various factors. Lee pointed out that discussions regarding this approval are ongoing between the FSS and FSC, underscoring the collaborative nature of this regulatory oversight.
Furthermore, Lee addressed the precarious situation concerning MG Non-Life Insurance, which recently lost its priority negotiation partner, Meritz Fire & Marine Insurance, in the wake of a new management plan being developed within a week to alleviate uncertainties. "We are doing our best to establish a management plan early to minimize uncertainties around MG Non-Life Insurance," he remarked. This comes at a time when the prospects of either a third-party acquisition or a turnaround for MG Non-Life Insurance don’t seem promising.
Lee stated, "MG Non-Life Insurance is struggling with the possibility of a third-party acquisition or its own normalization; neither route shows significant progress." He reiterated the importance of balancing the need for healthy competition in the insurance marketplace while simultaneously ensuring that policyholders' rights are not compromised.
Additionally, the topic of governance within Hana Financial Group surfaced during these program discussions, specifically regarding Chairman Ham Young-joo's reappointment contesting the narrative of ‘self-amending’ internal regulations. Lee made it clear that this issue rests within the purview of shareholders and the respective stakeholders associated with Hana Financial Group. According to Lee, the pertinent financial regulations or government guidelines should not interfere with corporate governance decisions regarding leadership roles. "This is primarily a decision for the shareholders and company stakeholders, but we will scrutinize whether the necessary information was accurately conveyed to all involved aspects," he commented.
The impending shareholders' meeting for Hana Financial intends to address the re-election of Ham Young-joo as chairman, which would permit him to fulfill a three-year term should he be re-elected.
The issues at hand reflect a larger trend within South Korea’s insurance and financial sectors, where regulatory bodies are seeking to tighten control and enhance accountability amongst financial institutions to protect consumers and maintain stability in the market. The FSS, through its assessments, aims to foster an environment where internal compliance and risk mitigation are prioritized.
Ultimately, as Woori Financial and other entities navigate the challenges ahead, the regulatory landscape continues to evolve, ensuring that effective governance and ethical conduct remain at the forefront of the industry's direction.
