[Q&A] Lee Chanjin: "Criminal Penalties Possible for Misuse of Business Loans by Banks and Mutual Finance Institutions"

Considering Halting Product Sales If Consumer Harm Is Anticipated

Strict Crackdown on Final Marketing of 4th-Generation Indemnity Insurance Before 5th-Generation Launch

On Relocation Rumors: "It Is Hard to Imagine Leaving the Field"

On March 26, Lee Chanjin, Chairperson of the Financial Supervisory Service, issued a stern warning, stating, "We will impose strict sanctions, including criminal proceedings if necessary, against the misuse of business loans by banks and mutual finance institutions for purposes other than their intended use."

On March 17, Lee Chan-jin, Governor of the Financial Supervisory Service, attended the business agreement ceremony for eradicating cross-border crime, criminal fund outflow, and money laundering at the Seoul Headquarters Customs Office in Gangnam-gu, Seoul, and delivered a speech. Photo by Dongju Yoon

At a monthly press conference held at the main office in Yeouido, Seoul, Lee announced, "We will immediately begin on-site inspections of banks and mutual finance institutions."

The following is a Q&A with Chairperson Lee.

-What is the progress regarding improvements to the governance structure of financial companies?

▲There are measures to elevate best practices into legislation. We expect a conclusion to be reached next month. The amended Financial Companies Governance Act, reflecting the legislative tasks, is scheduled to be implemented in October. To my knowledge, there is no conflict between the Financial Services Commission and the Financial Supervisory Service. The government is reviewing such measures at the national level.

-What is the government's policy goal regarding the management of total household debt?

▲The government will soon announce its target for managing the total amount of household debt. I expect credit management to become tighter. Specifically, I expect the announcement to be made around next week.

-How will you crack down on the misuse of business loans by banks and mutual finance institutions for purposes other than intended?

▲We are about to begin on-site inspections of banks and mutual finance institutions. For mutual finance, we plan to request inspections through their central associations. Any employees or loan brokers at financial companies found to be involved in misuse of loans for unintended purposes will face strict sanctions. If the violations go beyond regulatory breaches and constitute criminal acts, we will also refer the matter to investigative authorities and initiate criminal procedures. This is not a one-off; we will continue to crack down on the misuse of loans for unintended purposes and, if necessary, proceed with strong criminal prosecution.

-On March 20, the Financial Supervisory Service Consumer Risk Response Council held its inaugural meeting. Can you comment?

▲There are unexpectedly many issues that cut across different sectors. Although the initial plan was to hold a meeting for about one and a half hours, we are now transitioning to a workshop format lasting around three hours. The approach has proven quite effective. If the discussions indicate that further consumer damage is anticipated and a halt to product sales is necessary, we are prepared to take action.

-How will you respond to foreign exchange accidents at internet banks?

▲We have looked at this from two perspectives. First, we are focusing on the possibility of input errors and the imperfections in systems and programs. Second, we are concerned about the lack of cross-checking in human oversight and management controls. We are preparing to conduct comprehensive inspections not only of the internet bank where the incident occurred but also of other internet banks.

-You emphasized the importance of preemptive rather than reactive measures for consumer protection at insurance companies. Can you elaborate?

▲We are actively identifying and pursuing consumer protection tasks throughout the entire value chain of 'product design, review, sales, and insurance claims payment.' We also need to coordinate on strengthening management of 'third-party risks' across sectors. It may be necessary to legislate insurance company product committees. For example, to strengthen the role of the Chief Consumer Officer (CCO), it may be necessary to institutionalize the right of veto for CCOs in product committees. In addition, we are recommending that insurance companies set internal goals for complaint management and self-monitoring, and we are providing a standard Key Performance Indicator (KPI) framework to encourage them to reflect these efforts in their performance evaluation systems.

-When will the 5th generation indemnity health insurance be launched?

▲There appears to be some traffic in the governmental review process. The financial authorities have finalized their part. It is difficult to specify an exact date. We will strongly guide insurance companies to prevent excessive marketing or bundled sales of 4th generation indemnity health insurance products just before launching the 5th generation products.

-Do you have data on the exposure (risk exposure) related to private loans by insurance companies? Are there guidelines for reflecting risk in ratios such as the K-ICS?

▲(Executive Vice President Seo Youngil) Insurance company exposure to private loans stands between 28.5 trillion won and 29 trillion won. This represents about 0.02% of insurance companies' total assets (approximately 130 trillion won), so it is manageable. Regarding the K-ICS ratio, we use the fund risk coefficient. Since the exposure amounts to only 0.02% of total assets, even if the entire amount becomes non-performing, it will not significantly affect the K-ICS ratio.

-The Financial Supervisory Service is mentioned as a candidate for the second phase of public institution relocations. Has the government ever communicated its opinion on this matter?

▲We have not received any such communication. I am not sure if it is appropriate to comment on something that has not been formalized. Generally speaking, the mission entrusted to financial supervisory authorities by the public is the supervision and management of financial companies and capital markets, prudential supervision, and transparency oversight. Consumer protection is also essential. So, where exactly is the field that needs protection? It would be odd for supervisors to leave the field. The reality is that the centers of finance are inevitably concentrated in the Seoul metropolitan area. It is hard to imagine leaving the field and moving somewhere else.

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