Comprehensive Inspections May Start as Early as the Second Week of Next Month... Financial Sector on Edge

As the reduction of inspection frequency is inevitable, strict pinpoint inspections for high-risk products are enforced

[Asia Economy Reporter Jo Gang-wook] The comprehensive inspection by the Financial Supervisory Service (FSS) targeting all financial companies is expected to begin as early as the second week of next month. Due to the impact of the novel coronavirus disease (COVID-19), no comprehensive inspections have been conducted so far this year, making it inevitable to reduce the number of inspections originally planned for the year. However, following last year's large-scale principal loss caused by the overseas interest rate-linked derivative-linked fund (DLF) incident, and the successive insolvency incidents such as Lime, Discovery, and Optimus, the financial sector is on high alert as more meticulous and stringent 'pinpoint' inspections on high-risk financial products are expected to be carried out.

According to financial authorities and the financial sector on the 13th, the FSS has requested data from financial companies subject to comprehensive inspections and plans to start the inspections in earnest next month. A senior FSS official said, "Usually, we notify financial companies one month in advance before conducting comprehensive inspections and request data," adding, "We plan to conduct comprehensive inspections on financial companies after the summer vacation." The FSS's summer vacation break is from the 27th of this month to the 7th of next month. Therefore, it is highly likely that comprehensive inspections will begin from the second week of August at the earliest.

Typically, the FSS's sector-specific inspection departments conduct comprehensive inspections in the first half of the year during April and May, then take a break during the vacation period in July and August. Afterwards, they conduct comprehensive inspections in the second half of the year, inspecting two to three financial companies annually. However, this year is different. Although the first half of the year has passed, COVID-19 continues to show sporadic spread, making it impossible to predict when the infectious disease disaster alert level will be lowered. Due to the full-scale outbreak of COVID-19 starting in March, no comprehensive inspections have been conducted this year.

Accordingly, it seems difficult for the FSS to carry out the inspections as originally planned this year. Initially, the FSS planned to deploy a total of 6,129 personnel to conduct comprehensive inspections on 17 financial companies this year, including ▲3 banks ▲3 financial holding companies ▲3 securities firms ▲3 life insurance companies ▲3 non-life insurance companies ▲1 specialized credit finance company ▲1 asset management company. However, the number of targets in sectors where three inspections were planned is expected to decrease to one or two. Comprehensive inspections require the mobilization of most personnel from the inspection departments, and after about a month of inspection, considerable time is needed for follow-up work.

Among life insurance companies, Kyobo Life Insurance is reportedly the first to be selected as a comprehensive inspection target. The FSS recently requested Kyobo Life Insurance to submit preliminary data for the comprehensive inspection. After reviewing the submitted data, the FSS plans to conduct an on-site inspection in September. Comprehensive inspections typically proceed with a two-week preliminary inspection followed by a four-week main inspection. Previously, the FSS conducted comprehensive inspections on Hanwha Life Insurance and Samsung Life Insurance in the first and second halves of last year, respectively. Among the big three life insurance companies, only Kyobo Life Insurance had not undergone a comprehensive inspection. Hyundai Marine & Fire Insurance and Samsung Fire & Marine Insurance were also listed as targets for this year's comprehensive inspections.

The FSS is expected to focus on governance and financial soundness during the Kyobo Life Insurance comprehensive inspection. Attention is on the impact on consumers of the lawsuit between Kyobo Life Insurance Chairman Shin Chang-jae and financial investors (FIs). Chairman Shin and the Affinity Consortium, among other FIs, are engaged in arbitration litigation related to the exercise of a put option (the right to sell shares at a specific price).

Among financial holding companies and banks, Woori Financial Group and Woori Bank, as well as Hana Financial Group and Hana Bank, are likely inspection targets. Among the five major financial holding companies and banks, NH Nonghyup Financial Group and NH Nonghyup Bank underwent comprehensive inspections in the second half of 2018, KB Financial Group and KB Kookmin Bank in the first half of last year, and Shinhan Financial Group and Shinhan Bank in the second half. Notably, Woori Bank and Hana Bank received six-month partial business suspension sanctions and fines from financial authorities in March this year due to the 'DLF incident.' The fines imposed on the two banks amounted to 16.78 billion KRW and 19.71 billion KRW, respectively. Additionally, Son Tae-seung, chairman of Woori Financial Group, and Vice Chairman Ham Young-joo, who were heads of the two banks during the DLF incident, received heavy disciplinary actions (warning letters). They appealed against these sanctions and filed for suspension of the enforcement of the FSS's disciplinary warnings, which the court accepted. Consequently, concerns have arisen in some quarters about retaliatory inspections based on 'resentment charges.'

This content was produced with the assistance of AI translation services.