Financial Supervisory Service to Completely Revamp Inspection Methods... "Shift to Preventive Supervision Approach"

‘Prosecutor and Sanction Innovation Plan’ Financial Company Meeting Held
FSS, Comprehensive and Sector Inspections → Regular and Ad Hoc Inspections
If Financial Companies Correct Illegal Acts After Self-Audit, FSS Will Accept

[Asia Economy Reporter Song Seung-seop] Financial authorities are significantly improving the financial sector’s inspection and sanction system by strengthening preventive supervision and encouraging financial companies to self-assess potential risks. This aims to flexibly respond to environmental changes and balance between preventive and post-supervisory measures. Communication with the financial market during the inspection and sanction process will also be enhanced.

On the 27th, the Financial Supervisory Service (FSS) held a financial company meeting on the ‘Inspection and Sanction Innovation Plan’ at the Federation of Banks Building in Jung-gu, Seoul, and disclosed the improvement plan. This comes about four months after the FSS formed a task force (TF) to improve inspections and sanctions internally.

Going forward, the FSS’s inspection system will shift from comprehensive and sectoral inspections to regular and ad hoc inspections. Comprehensive inspections refer to management status and post-operational inspections, while sectoral inspections focus on specific themes or incidents. The key feature of regular and ad hoc inspections is to minimize excessive discretionary inspections, which were cited as a problem in the existing system.

Regular inspections will be differentiated in terms of inspection cycles and scope according to the characteristics of each financial company, focusing on management status evaluations. When conducting evaluations, the FSS plans to enhance effectiveness by considering the characteristics and risks of each financial sector. Ad hoc inspections will be conducted flexibly based on specific issues such as incidents and risk factors. The functions of inspection and guidance to prevent soundness risks or consumer damage in advance will also be strengthened.

Preventive supervision will also be reinforced. The basic direction is to detect and respond early to major risk signs by financial industry and company. Each financial company will have an information channel called a ‘Communication Cooperation Officer,’ and the Inspection Bureau will actively share major supervisory policy directions and concerns with financial companies. Additionally, active work meetings between the responsible inspection teams and Communication Cooperation Officers will be encouraged.

Strengthening Preventive Supervision, Encouraging Financial Companies to Self-Check Potential Risks

As part of preventive measures, the FSS decided to help financial companies self-check potential risks revealed during continuous monitoring or on-site inspections. Inducing voluntary internal control improvements can also compensate for the limitations of limited inspection resources. A system allowing financial companies to request self-audits on specific issues will also be introduced. If companies detect illegal acts on their own and take appropriate measures, the FSS plans to accept this as a basis to establish such practices as a norm.

The communication procedure regarding inspection results will be changed to listen attentively to the financial companies’ explanations. Although management interviews were conducted before the inspection ended, they will be flexibly held even after the inspection to clearly convey the points to be addressed. Inspection opinion letters containing the issues and their grounds will be handed over on-site in advance, and the head of the Inspection Bureau will directly listen to the explanations of the persons subject to measures.

Collaborative decision-making will be activated to ensure inspection processing is as reasonable as possible. A pre-consultation body, chaired by the responsible executive and involving related departments, will be formed when creating inspection results and action plans. This consultation is expected to reduce the inspection team’s burden of responsibility.

Lee Chan-woo, Senior Deputy Governor of the FSS, who participated in the meeting, emphasized, “There have been criticisms that FSS inspections have been mainly post-sanction oriented and that insufficient communication with financial companies has limited the effectiveness of voluntary corrections. Through more than ten in-depth discussions, we have derived an innovation plan to promote a more effective and balanced inspection and sanction system.”

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