The headquarters of National Federation of Fisheries Cooperatives (NFFC) in southern Seoul / Courtesy of NFFC
The Financial Supervisory Service (FSS) has issued a management caution against the National Federation of Fisheries Cooperatives (NFFC) for its sloppy response to a failed overseas alternative investment worth 50 billion won ($37 million).
According to the FSS on Sunday, the fisheries cooperatives injected 50 billion won in an overseas alternative investment in March 2018, only to recognize 28.2 billion won in 2020 and 21.9 billion won in 2021 as impairment losses due to the invested party's eventual bankruptcy. Even after the entire principal was lost, the fisheries cooperatives were found to have not taken any follow-up measures.
The FSS, the country's financial watchdog agency, issued nine management precautions and five improvement requests to the fisheries cooperatives, demanding it strengthen alternative investment capabilities. Management precautions and improvements are measures of administrative guidance, asking financial companies to take voluntary moves to make enhancements in the areas pointed out by the financial authorities.
The supervisory institution pointed out that the fisheries cooperatives had failed to thoroughly review the risk factors of the investment, such as the loan-to-value (LTV) ratio and verification of documents related to business progress, prior to making the hefty investment decision. It also said that no measures have yet been taken to clarify where the responsibility lies or to prevent similar cases from occurring.
"The NFFC is required to take appropriate measures, including identifying the sources of responsibility through internal audit and strengthening business feasibility assessment as well as review processes to prevent the occurrence of similar cases," the FSS said.
The FSS also ordered the fisheries cooperatives to strengthen management capacity countering any potential liquidity risks, which can happen as a result of liability maturity mismatches or unexpected funds outflow. The financial authority added that while the maturity structure of the NFFC's financing is unevenly distributed, with concerns over mismatches between asset and liability maturities, the cooperatives lack contingency plans to respond to the sudden outflow of deposits.
The financial watchdog agency also demanded the NFFC make improvements in its mandatory time away (MTA) system. The mandatory leave is a fraud prevention technique employed by banks to spot employees involved in scams or manipulations related to their tasks.
The fisheries cooperatives' bylaws state that employees in accident-prone tasks are required to take unexpected mandatory time away for five days or less at least once a year. But, there have been no cases of such mandatory leave at the cooperatives since 2014.