CONTENTS
- 1. Financial Institution Examinations and Investigations | The Financial Supervisory System and the Examination Regime
- - Examination Procedures of the Financial Supervisory Authorities
- - Investigation of Unfair Trading in the Capital Markets
- 2. Financial Institution Examinations and Investigations | Response Strategies for Financial Companies
- - Strategies for Strengthening Compliance and Internal Controls
- 3. Financial Institution Inspection/Investigation | The 2026 FSS Work Plan and Its Impact on Businesses
- - Potential Impact on Businesses and Points to Note
- - The Importance of Responding to Financial Regulation
1. Financial Institution Examinations and Investigations | The Financial Supervisory System and the Examination Regime
Financial institution examinations and investigations are supervisory activities carried out by the financial supervisory authorities to maintain the soundness of financial companies and the order of the financial markets.
The Financial Services Commission and the Financial Supervisory Service conduct regular and ad hoc examinations of financial companies to maintain financial market stability and to protect financial consumers, and they carry out separate investigation procedures for violations of the Financial Investment Services and Capital Markets Act.
In Korea, the Financial Services Commission and the Financial Supervisory Service exercise supervisory authority over financial institutions, and a wide range of financial institutions, including banks, securities firms, insurance companies, and asset management companies, may be subject to examination.
Financial institution examinations cover not only the financial condition of a financial company but also various areas of its operations, such as internal controls, risk management, and the financial product sales process.
As the financial market environment grows more complex and financial products become more diverse, the examination and investigation activities of the supervisory authorities tend to expand as well.
Examination Procedures of the Financial Supervisory Authorities
Examination procedures by the financial supervisory authorities are generally divided into regular examinations and ad hoc examinations.
Category | Key Content |
Regular examination | Review of the overall operations and financial condition of a financial company |
Ad hoc examination | Conducted when a specific incident or risk factor arises |
Thematic examination | Focused review of a specific financial product or business practice |
During the examination, requests for the submission of a financial company's internal records, on-site examinations, and interviews with executives and employees are conducted.
If violations are found as a result of the examination, the financial company may face administrative sanctions from the supervisory authorities or the matter may proceed to a criminal investigation.
Investigation of Unfair Trading in the Capital Markets
The financial supervisory authorities also exercise investigative authority over violations of the Financial Investment Services and Capital Markets Act in order to maintain order in the financial markets.
Representative conduct subject to investigation includes the following.
- Use of undisclosed material information
- Market manipulation
- Fraudulent and improper trading
- Violation of disclosure obligations
- Violation of short-selling regulations
- Disruption of market order
If such conduct is detected, it may lead not only to administrative sanctions but also to criminal punishment at the levels set out below.
Type of Violation | Punishment |
Use of undisclosed material information (insider trading) | Imprisonment for at least one year or a fine of four to six times the unlawful gain |
Market manipulation | |
Fraudulent and improper trading | |
Illegal short selling | Imprisonment for up to three years or a fine of up to 100 million won |
Violation of a financial company's internal control obligations | Administrative sanctions such as institutional warnings, suspension of business, and reprimands or suspension from duties for executives and employees |
2. Financial Institution Examinations and Investigations | Response Strategies for Financial Companies
Responding to financial institution examinations and investigations goes beyond simply meeting the supervisory authorities' requests, and it is important to establish a strategic response framework from the early stages.
In particular, the initial response, including the submission of records, the organization of the facts, and the development of an explanatory strategy, can determine the level of any future sanctions.
Financial companies and businesses may need to build their examination response framework around the following strategies.
✔ Developing a strategy for record submission and communication
In response to the supervisory authorities' requests for records, the scope and content of the submission should be reviewed in advance, and the facts should be organized accurately before responding.
Submitting incomplete or contradictory records may lead to an expanded examination or to further investigation.
✔ Analyzing the facts and legal issues in advance
Transaction structures, internal decision-making processes, and regulatory compliance that could become issues during the examination should be reviewed in advance so that the legal issues can be organized.
✔ Preparing an explanatory strategy and drafting written opinions
Because written explanations and opinions serve as key materials in determining whether sanctions are imposed and at what level, a systematic explanatory strategy should be prepared on the basis of the relevant laws, supervisory regulations, and precedents.
✔ Preparing a strategy for the Sanctions Review Committee
At the Sanctions Review Committee stage, strategic advocacy is needed that comprehensively explains not only the facts but also whether the violation was intentional, the efforts made regarding internal controls, and the measures taken to prevent recurrence.
✔ Preparing for follow-up and dispute responses
After a sanction is decided, the legality and validity of the sanction may be contested through follow-up procedures such as objections and administrative litigation, so a response strategy for these should be reviewed as well.
Strategies for Strengthening Compliance and Internal Controls
In the recent financial regulatory environment, the internal control and compliance systems of financial companies and businesses participating in the financial markets have become a central focus of supervision.
The financial supervisory authorities regard not only unlawful conduct but also whether internal control systems are functioning properly as an important factor in their assessment.
Financial institutions therefore may need to strengthen their internal control systems in the following directions.
✔ Updating internal control rules and the compliance monitoring system
Internal control rules that reflect financial laws and supervisory regulations should be updated, and the compliance monitoring function should be strengthened.
✔ Managing financial product sales and investment decision-making procedures
During the sale of financial products, investor protection regulations should be observed, and internal approval procedures should be operated reliably.
✔ Building a system for managing conflicts of interest and internal information for executives and employees
An internal information management system should be built to prevent the use of undisclosed information and conflicts of interest.
✔ Operating an internal reporting and risk management system
To detect the possibility of unlawful conduct at an early stage, an internal reporting system and a risk management framework should be operated.
Where such internal control systems are inadequate, the risk of sanctions may increase during examinations by the financial supervisory authorities, and there may also be a possibility that corporate-level liability is expanded.
3. Financial Institution Inspection/Investigation | The 2026 FSS Work Plan and Its Impact on Businesses
Through its 2026 work plan, the Financial Supervisory Service has set strengthened financial consumer protection and the stability of financial markets as its principal goals, and it is pursuing 5 strategies and 15 core tasks.
The main strategies are as follows.
Strategy | Key Content |
Reform | Innovation of inspection and sanction processes and digitalization of supervisory work |
Trust | Establishment of a supervisory framework centered on financial consumer protection |
Stability | Management of financial market risk and household and corporate debt |
Shared Growth | Response to financial crimes affecting daily life and financial support for vulnerable groups |
Future | Strengthening of the supervisory framework for digital finance and virtual assets |
Potential Impact on Businesses and Points to Note
In line with the direction of financial supervision policy in 2026, the following effects are expected not only for financial companies but also for businesses that participate in financial markets.
In particular, for companies related to the capital markets or companies that use financial products, supervision of compliance with disclosure obligations, internal information management, and market order regulations may be strengthened.
The Importance of Responding to Financial Regulation
Financial institution inspection/investigation is an important supervisory procedure for the stability of financial markets and the protection of investors.
However, if violations are found during the inspection and investigation process, various legal risks may arise, such as administrative sanctions, penalty surcharges, and criminal punishment.
Daeryun Law Firm provides legal advisory across the full scope of responding to financial institution inspections and investigations through a TF in which finance attorneys, criminal attorneys, and corporate attorneys collaborate.
In particular, it provides comprehensive legal services ranging from responding to inspections by financial supervisory authorities, responding to the Sanctions Review Committee, and handling administrative litigation and criminal proceedings, thereby supporting financial institutions and businesses in reducing their legal risks.
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