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Examination Process

Off-Site Monitoring

FSS examiners conduct off-site monitoring on an ongoing basis to help identify and address financial institutions’ areas of weakness, deficiency, vulnerability, and risk. Off-site monitoring usually involves analyzing financial and operational reporting from financial institutions, evaluating quantitative safety and soundness measures, and addressing issues of supervisory concern. For data collection and analysis, FSS examiners make use of wide-ranging sources including business reports that financial institutions file regularly with the FSS, internal reports, and meetings with senior executives and employees. Impact analysis of the subject institution’s business strategy on its risk profiles is also carried out as routine part of off-site monitoring. Various IT support systems also facilitate off-site monitoring. When deemed necessary, FSS examiners also visit the subject institution in person to obtain additional information on unusual activities or areas of supervisory concern.

The findings of off-site monitoring often form the basis for on-site examination and other supervisory actions. The relationship manager assigned to each financial institution also participates in the off-site monitoring.

Pre-Examination Preparation

Planning for examination of financial institutions consists of quarterly and annual examination plans. The annual examination plan provides for the basic examination parameters and activities for the year with a particular emphasis on supervision policy objectives. It thus sets financial institutions (and branches) to be selected, the types of examination to be carried out (full-scope and targeted), the tentative dates, the number of examiners to be assigned, and the scope of the examination activities.

The selection of financial institutions to undergo a full-scope examination during the year is made with due consideration given to the size, the complexity, and the risk profile of the subject institutions, and the examination cycle. On the other hand, the selection for targeted examination is typically influenced by incidence of unsound or improper business practices and irregularities. After the annual examination planning is completed, a quarterly examination plan is set detailing the order of financial institutions to be examined, the dates and the duration of the examinations, the number of examiners to be allocated, and other details. The finalized quarterly examination plans are shared with the Bank of Korea and the Korea Deposit Insurance Corporation.

As part of the pre-examination planning, FSS examiners gather information on the subject institution from a number of sources including off-site monitoring and previous supervisory evaluation and ratings and apprehend the institution’s overall financial and business status. A pre-examination team is also formed to lay the groundwork for the upcoming examination. The subject institution is given a prior notice providing examination and purpose and schedule at least ten days ahead of the commencement of the examination. Under an unusual circumstance in which giving a prior notice may compromise or jeopardize the intended performance of the examination, no advance notice may be given to the subject institution.

On-site Examination

FSS examiners start off a full-scope on-site examination by meeting with the senior managers of the subject institution to give them appropriate guidance and expectations on the examination to be conducted. As part of the examination process, the examiner-in-charge may obtain statements and documentations from the subject institution’s managers and employees and, if necessary, from other related parties. The scope of the examination may be expanded to include additional branches and other institutions if evidence of misconduct by the subject institution and other institutions exists, and the misconduct identified requires more extensive inspection.

Upon the completion of the full-scope on-site examination, the examiner-in-charge meets with the management and the board directors of the subject institution to communicate the supervision and examination policies of the FSS and areas of weakness and other supervisory concerns that came to light as a result of the examination.

Post-Examination Action

Upon the completion of a full-scope on-site examination, the examiner-in-charge prepares the examination report detailing the examination findings that include corrective actions to be taken to address unsatisfactory or deficient areas. For more serious violations of laws and regulations, enforcement actions are recommended.

The examination report and enforcement action recommendations are reviewed internally at the examination department and at the Enforcement Review Office to ensure proper, fair, and objective post-examination actions. When the internal review by the FSS is completed, the Financial Services Commission may conduct additional review if the gravity of the matters raised in the examination findings merits it and decide on the adverse actions to be taken. The review process also provides for opportunities for the subject institution and individuals to be sanctioned to file objections to the adverse action decisions made by the Enforcement Review Committee or the FSC.

Enforcement Actions

Enforcement typically takes the form of administrative sanctions against the subject institution and individuals involved in a rule violation. The types of sanctions that may be imposed on financial institutions and individuals include the following:

Sanctions
Sanctions
Financial institutions
  • Revocation of business authorization, approval, or registration;
  • Whole or partial business suspension;
  • Branch closure, whole or partial suspension of branch operations;
  • Cease and desist order;
  • Transfer of business contracts to an unaffiliated party;
  • Order for public announcement or disclosure notice for wrongdoing; and
  • Institutional warning.
Senior executives
  • Recommendation for dismissal;
  • Work suspension;
  • Disciplinary warning, admonition;
Employees
  • Recommendation for dismissal;
  • Work suspension;
  • Pay reduction;
  • Reprimand, disciplinary warning;
Monetary penalty
  • Civil fine;
  • Administrative fine;
Other sanctions
  • Management caution;
  • Order for corrective measures, commitment letter;
  • Order for restitution;
  • Referral for criminal penalty;