The Financial Supervisory Service (FSS) made the request at a meeting with auditors from 21 securities firms, including 10 large investment firms and 11 mid-sized brokerages, aimed at strengthening preventive, investor-centered internal controls.
At the meeting, the watchdog urged firms to move away from audits that identify problems only after they occur and focus on detecting risks before investors suffer losses.
“We need to fundamentally reassess whether current internal controls are sufficient to meet investors’ expectations and earn their trust,” said Seo Jae-wan, deputy governor responsible for financial investment at the FSS.
Seo said recurring violations included false or inadequate product descriptions and sales staff using personal mobile phones to solicit customers without leaving required records, a sign that even basic controls were not working properly.
He also called on internal audit teams to independently check whether investor-protection procedures are working in practice, rather than limiting their response to declarations or pledges after problems emerge.
“Senior management, including chief executives, should not view internal audits as merely a cost, but should strengthen audit capabilities by providing sufficient staff and resources.” Seo said.
The FSS also shared findings from recent reviews of how financial products are developed and sold and gave guidance on stock lending by liquidity providers (LPs).
It also urged brokerages to properly implement measures introduced to curb excessive margin lending, in which investors borrow money from securities firms to buy stocks.
Separately, the regulator asked firms to ensure that follow-up measures under its plan to curb false and misleading advertising are properly implemented.
The meeting also addressed cybersecurity following a series of recent data breaches across the country’s financial sector.
The regulator urged securities firms to thoroughly review their IT security and monitoring systems, quickly assess potential investor harm and take immediate protective measures if needed.
Brokerage representatives agreed to review whether investor-protection and risk-management systems were working properly across their operations and to strengthen preventive internal audits.
The regulator said it would continue helping firms strengthen internal audits and improve coordination with regulatory inspections.
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