Monopoly of Bank Auditor Posts

The global financial crisis that erupted two years ago has highlighted the importance of supervising the soundness of financial institutions. Yet much remains to be done. In July, 14 employees at the Financial Supervisory Service, the country’s financial watchdog, audited Jeju Bank. The bank’s chief auditor and vice president treated seven of them to dinner, and three went to a bar afterwards arranged by Won Woo-jong, a full-time auditor at Shinhan Bank and a former executive at the watchdog. This is a typical example of banks trying to exploit the human networks of bureaucrats-turned-auditors to lobby the financial watchdog. The chief auditor was given a mild reprimand and two others who went to the bar received warnings.

Financial institutions expect bureaucrats-turned-auditors to provide protection from auditors. Such practices have also prevailed in the Lee Myung-bak administration, which seeks the advancement of the domestic financial industry. Executives at the financial watchdog even say it is easy to work with auditors formerly employed there. Such practices are apparently related to passive inspection by financial regulators on Shinhan Financial Group Chairman Ra Eung-chan, who is suspected of making illegal bank transactions.

Over the last five years, 84 of 88 executives at the financial watchdog Grade 2 or higher were employed at financial institutions. The remaining four were not hired because they did not wish to work. Among the 84, 82 are auditors. It took an average of just seven days for 38 former executives at the financial watchdog to be reemployed at financial institutions. Life insurers, in particular, employed a massive number of ex-bureaucrats ahead of their share listings. Against this backdrop, staff at the watchdog are taking a soft stance in auditing financial institutions that could hire them later while taking a hard-line stance on others.

Becoming an auditor at a financial institution seems to be a post-retirement program of the Financial Supervisory Service. This is why such institutions fill jobs with such retirees. In essence, the watchdog is helping financial institutions avoid rules that ban violation of public servant ethics.

Financial Supervisory Service Gov. Kim Jong-Chang supports reemployment of retirees on the grounds of utilizing experts. Following this logic would allow the Foreign Affairs and Trade Ministry to also justify the preferential treatment it gave to the daughter of its former minister. Kim, however, appears to have overlooked the potential for abuse. At his organization, the boss tends to be nice to his subordinates because he can go to a financial institution under audit after he leaves the financial watchdog.