South Korea’s financial regulator will take initial steps in reviving the comprehensive inspection of financial firms within the next few weeks after four years, prompting concerns the practice may keep the sector on a tight leash.
The Financial Supervisory Service will launch the inspection of at least five local financial firms, starting with KB Securities in May. The confirmed list as of Tuesday included KB Financial Group, KB Kookmin Bank, KB Securities, Hanwha Life Insurance, and Meritz Fire & Marine Insurance.
More firms are expected to face scrutiny by the FSS. An annual average of 50 firms were subjected to the inspection from 2009 to 2013, but about 25 firms are projected to be named throughout the year, as the FSS has said it would halve the number.
The inspection looks into a range of issues, including corporate governance, internal control systems, financial stability and consumer protection. It had been abolished in 2015 amid criticism that it discouraged the financial sector from expanding their businesses. The monthlong process had also irked firms, with critics suggesting the process itself could be retaliatory in nature.
But the FSS has been keen on bringing back the practice since last year, saying it would aid firms in improving consumer protection, corporate governance and risk management schemes.
“There is definitely the pressure of being named as one of the first groups to be inspected,” an official at one of the five named firms told The Korea Herald on Tuesday, requesting anonymity.
“We have concerns that it may affect other projects that we are pursuing at the moment,” the official added.
Experts stressed that in order for the FSS to avoid criticism of the new inspection, it needs to increase the transparency of the process and make clear to the public its key focus.
“There are concerns that the revival of the inspection aims to boost the FSS’ investigative capability and control over the financial sector,” said Cho Yeon-haeng, president of the Korea Finance Consumer Federation, a customer rights group.
“But this could negatively affect the market, and consumer protection needs to be the sole focus of the inspection,” he added.
By Jung Min-kyung (firstname.lastname@example.org