Responding to a Financial Supervisory Service Examination and Sanctions

Which step are you at?

Select your current step and the content for that step will appear below.

1. 1Ongoing monitoring / decision to examine
2. 2Advance notice of examination
3. 3On-site examination / submission of materials / preparation of Q&A records
4. 4Review and adjustment after the examination / notice of planned referral to the committee
5. 5Advance notice of sanctions / submission of opinions / inspection of documents
6. 6Deliberation by the Sanctions Review Committee
7. 7Sanction decision (Governor's action or recommendation to the FSC)
8. 8Notice of examination report / carrying out required actions
9. 9Objection / administrative appeal / administrative lawsuit

• Basic step
• Additional action / option
• Rejection / objection
• End of procedure

Time required

From the end of the examination to notice of results, a period set by the Governor within 180 days; objections are handled within 60 days from receipt (extendable by up to 30 days)

Cost

Lawyer's fees and the stamp fee for an administrative lawsuit are separate; check with the responsible department of the Financial Supervisory Service about any costs of the examination and sanctions procedure

Procedure guide

Read from start to finish in order. Red text marks deadlines set by law.

1. 1

   Financial Supervisory Service examinations apply to financial institutions subject to examination under §38 of the FSC Establishment Act and their officers and employees. The FSS decides on examinations based on the results of ongoing monitoring, etc. (Examination and Sanctions Regulations §7, §8), and sends an advance notice of examination at least 1 week (1 month for a regular examination) before the examination starts (§8-2). If there is a risk of materials being destroyed or an urgent issue, it may begin without notice.

   Current step
2. 2

   In an on-site examination, materials are submitted and Q&A records and confirmations of officers and employees are prepared (FSC Establishment Act §40, Regulations §9). When preparing a Q&A record, you can get help from an assistant such as a lawyer (Regulations §8-3), and the scope of assistance is specialized areas excluding the facts (Enforcement Rules §27-2(2)). The head of the examination team gives an opportunity to state opinions (Enforcement Rules §27). The Q&A record becomes the basis for sanctions, so check it carefully before signing.

3. 3

   The standard from the end of the examination to the notice of results is a period set by the Governor within 180 days (Regulations §14(5)), and notice that the matter will be referred to the Sanctions Review Committee is given within 125 days from the end of the examination (Enforcement Rules §59(5)). When you receive this notice, start preparing your written opinion.

4. 4

   Before the committee meets, an advance notice of sanctions arrives setting a period of 10 days or more (may be shortened in urgent cases) (Enforcement Rules §59(1)), and from then until the day before the committee meets, you can inspect the proposed agenda and supporting evidence (§59-2). Voluntary reports, efforts to remedy the situation afterwards, etc. can be grounds for reduction (Regulations §23), so explain them with materials.

5. 5

   At the plenary session of the Sanctions Review Committee, you can attend, make statements, and rebut, and you can have a lawyer's assistance (Regulations §34, Enforcement Rules §57(6)). The Governor then takes action directly or makes a recommendation to the Financial Services Commission (Regulations §33), and the Governor can demand correction or disciplinary action (FSC Establishment Act §41), recommend dismissal of an officer, or propose suspension of duties (§42), and so on. The regulations set no deadline for the FSC resolution stage, and this period is not counted in the standard examination processing period (Regulations §14(6) item 6).

6. 6

   When you receive the examination report, take action within 6 months for management cautions, 2 months for personnel actions on reprimands, and 3 months for matters requiring voluntary handling, cautions, compensation, and improvements, and report the results within 10 days from the end of the deadline (Regulations §15(1)). To challenge a sanction, file an objection within 1 month from the day the sanction notice or examination report reaches you (Enforcement Rules §61(1)). You cannot object again to the result (Regulations §37(4)).

Frequently asked questions

Practical questions that come up right away in this procedure.

QDo ordinary listed companies also undergo Financial Supervisory Service examinations?

The examination in this procedure applies to financial institutions subject to examination, such as banks, insurance companies, and financial investment business entities, and their officers and employees. Ordinary listed companies are not subject to this examination. An unfair trading investigation that a listed company undergoes by the Financial Supervisory Service is a separate procedure under the Financial Investment Services and Capital Markets Act, so it differs from this guide.

QWhen does the advance notice of examination arrive?

An advance notice of examination arrives at least 1 week before the start of the examination, or at least 1 month before for a regular examination. However, if there is a risk of materials being destroyed, or there is market instability or an urgent issue, an examination may begin without notice.So organizing internal control materials and a contact system for staff in charge in normal times is good preparation.

QCan a lawyer be present when an officer or employee prepares a Q&A record?

Yes. Under the regulations, you can get help from an assistant such as a lawyer when preparing a Q&A record (a document recording questions and answers) or a confirmation.However, the scope of assistance is limited to specialized areas, excluding the facts. The Q&A record is a direct basis for sanctions, so read it before signing and ask for incorrect parts to be corrected. If the responsibilities of the company and individual officers or employees may diverge, also consider having separate assistants.

QWe received an advance notice of sanctions. What can we do?

Submit a written opinion within the period set in the advance notice (10 days or more). From when you receive the advance notice until the day before the Sanctions Review Committee meets, you can inspect the proposed agenda and supporting evidence, so first check the supporting materials. If there are grounds for reduction, such as a voluntary report or efforts to remedy the situation afterwards, argue them with materials, and you can also attend the committee to supplement orally.

QHow do we challenge a sanction?

You can file an objection within 1 month from the day the sanction notice or examination report reaches you. The Financial Supervisory Service handles it within 60 days from the date of receipt (extendable by up to 30 days). You cannot object again to the result, so include all your arguments and materials from the start.When imposing a sanction, the Governor must inform you of the ways to challenge it, such as an objection, administrative appeal (a procedure for challenging a disposition before an administrative body), or administrative lawsuit. So first check the methods and deadlines you were informed of.Supreme Court precedent has held that a reprimand warning to an officer by the Governor is a disposition that can be challenged in an administrative lawsuit. For other sanctions, check by type using the challenge methods you were informed of.

QBy when must we carry out the required actions stated in the examination report?

The deadline is counted from the day the examination report is received: 6 months for management cautions, and 2 months for personnel actions on matters of reprimand. Matters requiring voluntary handling, cautions, compensation, and improvements are due within 3 months.Report the implementation results within 10 days from the end of each deadline. The deadlines differ by type, so it is safest to manage them with a deadline table by item.