Comprehensive Inspections of Financial Companies Cannot Be Delayed Further... 'Swift Action' Amid COVID-19 Situation

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Schedule Reduction... Impact on Second Half Inspection Timeline

[Asia Economy Reporter Oh Hyung-gil] The Financial Supervisory Service (FSS) is rapidly conducting comprehensive inspections that had been suspended due to the resurgence of COVID-19.

Although the government's Level 4 social distancing measures, which were the reason for halting the inspections, have not yet been lifted, it is interpreted that the financial authorities judged that further delays would only burden both the authorities and the institutions involved. This move is also seen as an intention to promptly complete the previously scheduled inspections amid anticipated changes in the direction of financial supervision following the inauguration of the new FSS Governor, Jeong Eun-bo.

According to financial authorities and the financial sector on the 27th, the FSS recently notified Samsung Fire & Marine Insurance that it will conduct a two-week on-site comprehensive inspection from the 30th of this month to the 10th of next month. For NH Nonghyup Life Insurance, an on-site inspection is scheduled for one week starting September 1. Additionally, on-site inspections for KB Financial Group and KB Bank began on the 23rd and are expected to conclude today.

The FSS had started comprehensive inspections of these financial companies in June but suspended on-site inspections due to the difficulty of continuing them amid the escalation to Level 4 social distancing caused by the resurgence of COVID-19.

Although inspections have resumed, it is known that the scale and schedule of on-site inspections have been significantly reduced in consideration of quarantine guidelines. A representative from one of the inspected financial companies said, "Only the minimum essential personnel are coming on-site," adding, "Accordingly, the relevant departments plan to select the necessary personnel to undergo the inspection."

Comprehensive inspections, which thoroughly examine the overall operations and financial status of financial institutions, typically involve more than 20 inspectors residing at the financial company for at least 2 to 3 weeks, reviewing all areas from governance and internal controls to soundness, consumer protection, personnel, and budgeting.

Originally, these inspections were supposed to be completed in July, but the schedule has been postponed to after September, making it uncertain whether inspections will proceed in the second half of the year. The financial sector has identified Woori Financial Group, Woori Bank, KakaoBank, Tongyang Life Insurance, and KB Insurance as potential inspection targets.

Since the process from data submission to preliminary and main inspections takes 2 to 3 months, it is considered practically impossible to complete the schedule by the end of the year, and there are suggestions that inspections may be postponed until next year.

The FSS had announced plans for large-scale comprehensive inspections this year. The plan was to conduct inspections on a total of 16 institutions: 2 banks, 3 financial holding companies, 4 securities firms, 4 insurance companies, 1 asset management company, 1 specialized credit finance company, and 1 mutual finance company. This was the largest number of targets since the inspections were reinstated in 2018.

There is also an interpretation that the reduction in comprehensive inspections is not solely due to COVID-19. It is pointed out that the supervisory authorities' stance is changing following Governor Jeong's emphasis on "communication with the market" and "support over regulation." Some speculate that the comprehensive inspections might be abolished to differentiate from the approach of former Governor Yoon Seok-won, who reinstated them.

Governor Jeong stated upon his inauguration on the 6th, "We will harmoniously operate both 'preemptive supervision' and 'post-supervision,'" adding, "Relying solely on post-supervision sanctions makes it difficult to gain cooperation from the financial sector and ultimately weakens consumer protection."

Financial Services Commission Chairman nominee Ko Seung-beom also commented on the revival of FSS comprehensive inspections, saying, "It has deepened the supervisory authorities' understanding of systemic issues within companies and induced financial companies' self-regulatory efforts for sound management and governance establishment," while also acknowledging, "We are aware of concerns raised about the increased burden on financial companies undergoing inspections."

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