Financial Supervisory Service Plans Comprehensive Inspections of Woori and Hana Banks, Expected as Early as Next Month (Comprehensive)

'Consumer Protection Focus' High-Intensity Inspections Expected
Sequentially Conducted in First and Second Half
Concerns Over 'Punitive Inspections' Amid Various Controversies

[Asia Economy Reporter Kim Hyo-jin] The Financial Supervisory Service (FSS) will decide next month whether to conduct a comprehensive inspection of Woori Bank and Hana Bank. These banks, which were sanctioned due to the overseas interest rate-linked derivative-linked fund (DLF) scandal, are once again under investigation by the FSS regarding allegations of incomplete sales of Lime Asset Management's private equity funds. This investigation could also lead to an inspection with the possibility of sanctions. If a comprehensive inspection is conducted, the banks will be exposed to unprecedentedly strong and all-encompassing pressure, raising concerns among them.

According to financial authorities and the financial sector on the 18th, the FSS plans to finalize this year's comprehensive inspection schedule for major financial holding companies and banks as early as next month. The inspections will be conducted sequentially, divided into the first and second halves of the year, according to the finalized schedule. Since last year until recently, the FSS has conducted comprehensive inspections on KB Financial Group and KB Kookmin Bank, Shinhan Financial Group and Shinhan Bank. Woori Financial Group and Woori Bank, Hana Financial Group and Hana Bank, SC First Bank, and Korea Citibank are subject to comprehensive inspections this year.

Attention is focused on Woori and Hana Banks. They have formed a tense relationship with the FSS due to CEO disciplinary actions related to the DLF scandal, anticipated future legal battles, and investigations into allegations of incomplete sales of Lime funds.

Since both the DLF and Lime incidents caused damage to financial consumers, there is a strong expectation that the intensity of the comprehensive inspections will be exceptional if conducted. The FSS declared its commitment to intensive inspections of financial companies' business practices to protect consumers and establish fair trading order through its '2020 Inspection Operation Plan' released last month. It also carried out an organizational restructuring to significantly expand consumer protection functions.

A financial sector official said, "If a comprehensive inspection is conducted, the focus will be on consumer protection areas such as internal control systems related to business practices," adding, "The ongoing Lime-related investigations or future inspections will not greatly affect whether or when the comprehensive inspection is conducted."

The FSS had effectively abolished comprehensive inspections after 2015 but revived them after Yoon Seok-heon took office as governor in 2018. The banking sector worries that the FSS's comprehensive inspections might take on the character of 'punitive inspections' due to various controversies. There are also concerns about operational disruptions caused by high-intensity inspections. A banking sector official expressed concern, saying, "The inspection process itself can be completed in one to two months, but follow-up procedures based on the inspection results can last from several months to several years."

Meanwhile, regarding the Lime scandal, the first targets of the joint on-site investigation to be conducted by the FSS next month include Lime Asset Management along with Woori Bank, Hana Bank, and Shinhan Investment Corp. The FSS plans to thoroughly examine allegations of incomplete sales by these distributors during the on-site investigation.