Financial Sector Faces 'Double Burden' Amid Regulatory Tightening by Authorities and National Assembly

Financial Supervisory Service Announces Plan to Double Comprehensive Audits
Series of Bills on Financial Major Shareholder Regulations Proposed in National Assembly

[Asia Economy Reporter Wondara] Financial authorities and the National Assembly are strengthening crackdowns on the financial sector. Concerns are emerging within the financial industry that, in addition to the "COVID cliff," a "regulatory crackdown" will create a double burden.

According to the Financial Supervisory Service's (FSS) "20201 FSS Inspection Operation Plan" announced on the 21st, the FSS plans to conduct comprehensive inspections 16 times (5,134 personnel) this year, more than double the 7 times (3,314 personnel) conducted last year, an increase of 9 times. The number of inspections is also planned to be 793, a sharp increase of 29.4% compared to 612 last year. The total inspection personnel will expand by 66%, from 14,186 last year to 9,444 this year. Sector-specific inspections, which were 606 times (10,872 personnel) last year, will increase by 171 times to 777 times (18,496 cases) this year.

The Financial Intelligence Unit (FIU) under the Financial Services Commission also stated on the same day, "We will expand the proportion of specialized inspections by entrusted inspection agencies, which currently account for only about 1%," and "We will also strengthen the FSS's direct inspection capabilities for casinos and virtual asset service providers." Specialized inspections refer to focused inspections solely on anti-money laundering areas, separate from comprehensive or concurrent inspections. Investigation capabilities will also be enhanced. The FIU said, "The number of suspicious transaction reports (STRs) increased about 18 times from 52,000 cases in 2007 to 926,000 cases in 2019, but the staff increased by only 3 to 69," and announced plans to "strengthen the FIU's own inspection and supervision personnel and expand long-term staff."

Financial Regulation Bills Continue to be Proposed in the National Assembly

In the National Assembly, bills to strengthen financial regulations are being proposed one after another. On the 19th, Yang Kyung-sook, a member of the Democratic Party of Korea, proposed the "Partial Amendment to the Act on the Governance of Financial Companies." The bill includes employment restrictions preventing financial company executives who have been sentenced to imprisonment or higher during their tenure from working at mutual aid associations composed of financial company employees or corporations and enterprises invested in by such associations. This is a strengthened provision compared to existing bills that only restricted employment at "related organizations that are de facto affiliates."

Previously, Min Byung-duk and Lee Hak-young, members of the Democratic Party, also proposed bills related to regulations on major shareholders of financial companies. Min proposed a bill allowing not only notification but also dismissal requests when executives who were fined or dismissed move to subsidiaries of financial holding companies. Lee proposed bills to impose fines or penalties when major shareholders exert undue influence for the benefit of third parties. Previously, regulations only applied when undue influence was exerted for the benefit of the major shareholder themselves.

A financial sector official pointed out, "Recently, there has been a movement to attract Hong Kong financial institutions to Korea, but Hong Kong became a financial hub by loosening various regulations," adding, "Korea is going in the opposite direction." He expressed concern, saying, "For the domestic financial sector, the second half of the year will be a crisis due to the COVID-19 financial support cliff, and on top of that, they will have to bear the burden of various audits and regulations."

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