With New Head, FSS's 'Weakened' Comprehensive Inspections... Uncertain Outlook for Second Half (Summary)

COVID-19 4th Wave
On-site Testing All Stop
Resumption Uncertain

[Asia Economy Reporter Oh Hyung-gil] The comprehensive inspection by the Financial Supervisory Service (FSS), which caused significant tension in the financial sector when it was revived in 2018, now stands at a crossroads. The ongoing comprehensive inspections were abruptly halted due to the fourth wave of COVID-19, making the prospects for resuming them in the second half of the year uncertain.

Moreover, with the new head of financial supervision signaling policy changes, the continuation of these inspections has become even more uncertain.

According to the financial sector on the 12th, the comprehensive inspections initiated in June on KB Financial Group, KB Kookmin Bank, NongHyup Life Insurance, Samsung Fire & Marine Insurance, and Meritz Securities were effectively stopped last month due to the elevation of social distancing to Level 4.

Depending on the financial institutions' circumstances, some only underwent preliminary investigations, while others began the main inspections but did not have any on-site examinations. It is also reported that the comprehensive inspection of the Korea Exchange, which was being pursued for the first time in 11 years, has entered a schedule adjustment phase.

A representative from one of the inspected financial firms said, "The inspection is neither stopped nor ongoing; it’s ambiguous. Occasionally, inquiry letters come by phone, and we continue to respond, but there is no clear answer on whether the inspection will resume, so we are left waiting indefinitely, which is causing fatigue among the department staff."

Another financial institution official said, "The inspection was interrupted midway, and we expect on-site inspections to resume once social distancing levels are lowered, but as the inspected party, we cannot be certain about the specific schedule."

Initially, the FSS stated it would flexibly adjust inspection plans depending on the COVID-19 situation, but with the implementation of social distancing Level 4, inspections have become impossible.

The progress of the comprehensive inspections planned for earlier this year has also become uncertain. In February, the FSS announced plans to conduct comprehensive inspections on a total of 16 institutions, including banks and holding companies, securities firms, insurance companies, asset management companies, specialized credit finance companies, and mutual finance companies.

The remaining financial institutions targeted for inspection in the second half of the year are also uncertain about when they will be inspected. It was reported that comprehensive inspections would be conducted on institutions such as Woori Financial Group, KakaoBank, Dongyang Life Insurance, and KB Insurance. However, there is now a possibility that these inspections may be postponed until next year or later.

Inspected Institutions Complain of Frustration, Saying "Waiting Indefinitely Is Exhausting"

Last year, plans were made to conduct comprehensive inspections on 17 institutions, but only 7 were completed due to COVID-19. Among banks and holding companies, inspections were expected for Hana and Woori Financial Groups, but only Hana Financial Group completed its inspection.

Comprehensive inspections examine overall operations such as consumer protection and internal controls, as well as management practices. They were revived when former FSS Governor Yoon Seok-heon declared a strengthening of financial supervision. However, with the appointment of a new FSS Governor, uncertainty about the continuation of comprehensive inspections has increased within the financial sector.

New Governor Jeong Eun-bo emphasized support over regulation as his inaugural message, placing importance on preventive measures as much as on post-regulation. In his inaugural speech, Governor Jeong stated, "Relying on post-sanctions makes it difficult to gain cooperation from the financial sector and ultimately weakens consumer protection. Please always remember that the essence of financial supervision lies in support, not regulation."

Former Governor Yoon, an academic, prioritized consumer protection and maintained a tough stance on financial institution sanctions. Strong sanctions followed incidents such as the overseas interest rate-linked derivative-linked fund (DLF) scandal, as well as the Lime and Optimus private equity fund scandals.

A financial authority official said, "We are considering resuming comprehensive inspections once social distancing Level 4 is lowered, but no future schedule has been set yet. It is difficult to provide definite answers regarding future inspection schedules or plans."

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