Jeong Eun-bo "FSS Discretionary Judgment Cannot Take Precedence Over Law and Principles" (Comprehensive)

Financial Supervisory Service - Meeting with Major Commercial Bank CEOs

Jeong Eun-bo (fifth from the right), Governor of the Financial Supervisory Service, along with heads of major commercial banks, are attending the 'Financial Supervisory Service Governor - Commercial Bank Heads Meeting' held on the 9th at the Kensington Hotel in Yeouido, Seoul, posing for a photo. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Jin-ho Kim] Jeong Eun-bo, Governor of the Financial Supervisory Service (FSS), emphasized on the 9th that "the discretionary judgments and decisions of the FSS cannot take precedence over laws and principles." This means that the authorities will minimize the reflection of discretionary judgments and decisions so that banks can predict the supervisory functions of the FSS.

This statement is interpreted as an intention to resolve conflicts that arose between financial authorities and financial companies when former Governor Yoon Seok-heon prioritized personal convictions over laws and principles.

On the same day, Governor Jeong stated at a meeting with major commercial bank CEOs held at the Kensington Hotel in Yeouido, Seoul, "When financial supervision is carried out according to laws and principles, predictability and legal stability are secured, which can enhance market trust."

The meeting was attended by most major bank CEOs, including Governor Jeong, Kim Kwang-soo, Chairman of the Korea Federation of Banks, Heo In, CEO of KB Kookmin Bank, Jin Ok-dong, CEO of Shinhan Bank, Kwon Kwang-seok, CEO of Woori Bank, and Park Sung-ho, CEO of Hana Bank.

Governor Jeong first presented three basic principles for the FSS’s financial supervisory duties: ▲ financial supervisory administration based on laws and principles ▲ harmony and balance between proactive supervision and reactive supervision ▲ and proactive financial consumer protection.

After the meeting, Governor Jeong told reporters, "The core of finance is not just buying and selling general products but trust, which ultimately comes from predictability," adding, "I believe the basis of predictability lies precisely in laws and principles."

He continued, "It is important that the FSS’s financial supervisory administration be conducted within the framework of laws and principles."

The FSS plans to announce the results of its review of the task force (TF) on inspections and sanctions of financial companies within the year. The core of this is to reform the FSS’s inspection system from reactive measures to proactive risk identification and prevention.

In the market, there are speculations that the FSS might effectively abolish comprehensive inspections of financial companies. This is interpreted as an improvement effort to quell strong dissatisfaction in the financial sector, which viewed the comprehensive inspections revived during former Governor Yoon Seok-heon’s tenure as a ‘sweeping crackdown’ aimed at detection and punishment over the past three years. Governor Jeong’s emphasis on "laws and principles" in his opening remarks supports this outlook.

When asked about the request from six financial associations, including the Korea Federation of Banks, to ease disciplinary or sanction-related measures, he replied, "I believe that systems related to internal controls need to be improved."

He explained, "The financial authorities must make their best efforts in both proactive and reactive supervision or inspection sanctions regarding risk factors. Efficient operation of financial companies’ autonomous internal control systems and supervision by authorities must go hand in hand for smooth consumer protection."

Regarding whether disciplinary measures against financial companies might be lowered in relation to the private equity fund incident, he said, "It is necessary to distinguish between issues of incomplete sales and governance problems." Governor Jeong added, "We will respond without delay to incomplete sales issues and proceed with related procedures. As for governance issues, we will handle them carefully through legal review of judicial judgments."

On the phenomenon where loan interest rates of first-tier financial institutions have been reversed with those of second-tier institutions, he said, "Basically, interest rates are determined by the market," ruling out intervention. Recently, an unusual situation has emerged where banks’ loan interest rates are higher than those of savings banks and others. Governor Jeong said, "I believe market autonomous decisions should be respected," but added, "However, I would like to mention that we are carefully monitoring this from a supervisory perspective."

When asked about the resumption of comprehensive inspections on Woori Financial Group, he was cautious, saying, "We will decide after comprehensively considering various conditions such as the COVID-19 situation and inspection personnel."

Meanwhile, the FSS announced that it will expand continuous monitoring and ad hoc thematic inspections of financial companies in the future, focusing more on improving risk vulnerabilities rather than punishment during on-site inspections. It also plans to build a financial product monitoring information system to ensure consumer protection and further advance future predictive supervisory tools such as stress tests and scenario analyses.

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