Examination of financial services firms is central to the prudential supervision objectives of the FSS. Because of the vital importance of effective examination in promoting the safety and soundness of financial services firms, the FSS regularly carries out both targeted and full-scope examinations to evaluate financial firms' financial health, risk management, internal controls, management competence, and compliance with rules and regulations. The FSS also continually performs off-site monitoring of financial services firms as part of its ongoing prudential supervision.
The examination cycle for most financial services firms is primarily determined by their risk exposure, scale of business, and complexity. Full-scope examinations are generally planned in advance in order to ensure a full and complete evaluation of a financial services firm's financial health. Supervisory ratings-such as CAMEL-R for banking institutions-are usually assigned following the completion of the full-scope examination of the subject financial services firm's head office. Targeted examinations are also normally planned ahead but may take place on an ad-hoc basis when deemed appropriate or necessary.
Upon the completion of an examination, FSS examiners communicate the findings to the financial services firm's senior management and the board of directors with recommendations for corrective actions to address areas of weakness that do not raise significant supervisory concerns. Enforcement actions such as referral to the law enforcement authorities for possible criminal penalties, revocation of the business licenses, or monetary fines are taken in cases of grave rule violation or compliance failure.
The FSS works closely with the FSC to ensure effective capital market supervision. The activities that the FSS carries out in support of capital market supervision are generally grouped into four distinct areas: corporate disclosure, securities market, investigation of securities violations, and accounting.
The FSS supervises corporate disclosure to make sure companies and securities issuers that are required by law to publicly disclose certain operating and financial information that is material to investors comply with the applicable disclosure rules and regulations. The types of disclosure made-such as a registration statement for an initial public offering or a filing for a secondary offering-vary with the types of securities issued in the primary market or traded in the secondary market. The FSS also enforces disclosure of equity ownership in publicly traded companies.
In respect of securities market, the FSS oversees trading activities in the securities market and enforces fair and orderly conduct to protect investors. All buying and selling of debt and equity securities that take place on- and off-exchange fall under FSS supervision. Under the law, Korea Exchange (KRX) is the only exchange duly recognized for the trading of listed debt and equity securities.
Investigating possible securities violations is a major enforcement activity for the FSS. The FSS normally initiates an investigation on its own or in collaboration with the KRX (the self-regulatory organization for the securities industry) and law enforcement authorities. Under the three-tier system, the KRX monitors securities buying and selling and refers suspicious activities to the FSS. In addition to its own enforcement action, the FSS may refer matters that warrant criminal penalties to the government prosecution authority for action.
The FSS conducts accounting supervision under the oversight authority delegated by the Financial Services Commission, which is charged with setting financial accounting standards and overseeing the accounting profession pursuant to the Act on External Audit of Stock Companies. Article 13-4 of the same act also delegates the work of developing financial accounting standards to the Korea Accounting Standards Board, a private standard-setting body. Under the authority delegated from the Securities and Futures Commission and as provided under the Act on External Audit of Stock Companies, the FSS inspects audits performed by accounting firms in order to ensure external auditors provide independent and reliable audit services.
The FSS carries out consumer protection supervision to safeguard consumers from malpractices of financial services firms and preserve a level playing field between financial services firms and consumers in the buying and selling of financial products and services. In an effort to bring about significantly enhanced consumer protection, the FSS created Financial Consumer Protection Bureau (FCPB) as a special quasi-independent division within the FSS in May 2012 and charged it with consumer protection and education.
As part of the mandate to protect and advance consumer interests, the FSS administers consumer complaint resolution services and conducts wide-ranging consumer education programs. Consumers can file complaints with the FSS against financial services firms through the consumer complaint resolution service and seek mediation and resolution. After the fact-finding and the case review are completed, the parties involved in the complaint are encouraged to come to a resolution without litigation through the court. Parties unable to come to a resolution may seek final mediation by the FSS. In addition to the complaint resolution service, the FSS also provides extensive consumer financial education programs and public services to help consumers better manage their finances and make informed decisions when buying financial products and services.