On February 19, 2025, the Financial Supervisory Service (the “FSS”) announced its “2025 Audit Operation Plan” (the “Audit Plan”). As the Audit Plan contains the FSS’s general audit direction and key audit items for 2025, banks will need to carefully review the Audit Plan in order to prepare for this year’s FSS audit.

The FSS announced that its audit activities in 2025 will focus on (i) identifying and addressing potential risk factors in advance and (ii) promptly responding to ongoing issues and serious cases.

The key approach of the FSS for the two general objectives mentioned above can be summarized as follows.
 

• The FSS is expected to monitor the sales of high-risk financial products for which prices fluctuate significantly, as such products have a higher risk for investors to suffer substantial losses. If any issues are identified, the FSS will review the appropriateness of all aspects of the product, including manufacturing, sales and post-sales management. The FSS is also expected to step up its pre-examination of bank branch offices with high risk.
   

• In order to facilitate the integration of the responsibilities map system into the regulatory framework of financial companies, the FSS is expected to examine the internal control management system of financial companies and examine how financial companies are operating their internal control standards in preventing financial accidents and mis-selling.
   

• Going forward, the FSS will strengthen connections between its supervisory work and audit work. For example, the FSS will review whether its regulatory guidance on household loan management and the winding down of non-performing real estate project financing (“PF”) loans are being implemented.
   

• In addition, the FSS announced that it will focus on reviewing the appropriateness of the performance-based compensation system of financial companies that may incentivize their officers and employees to take risky decisions and may create a corporate culture of pursuing short-term gains.
   

In the “2025 Financial Supervisory Service Work Plan,” the FSS stated that it will establish a “Financial Consumer Protection Investigation Bureau” to promptly conduct on-site inspections and investigations upon identifying issues that may potentially cause consumer damage. The Audit Plan could be seen as a reiteration of the FSS’s commitment to “strengthen preventive supervision and audits to protect financial consumers.”
 

Under the Audit Plan, banks should pay particular attention to the following.

Banks will need to comprehensively review their PF loans, household debt and corporate loan portfolios and strengthen their bank-wide risk management systems. Furthermore, regarding high-risk financial products and the work of high-risk branch offices that have already been subject to FSS audits and enforcement actions, banks will need to conduct thorough inspections in advance to prevent mis-selling of high-risk financial products that are likely to cause consumer damage.

In addition, banks will also need to review whether their internal control management systems and operation based on the responsibilities map function adequately and properly respond to potential risk factors. In particular, as the pilot phase has concluded and responsibilities maps for banks have become effective since January 2, 2025, the FSS is expected to thoroughly review how banks are implementing this framework. Therefore, banks should review the operation of their internal control systems in advance and continue to make improvements in line with the regulatory guidance given by the financial regulators.

[Korean Version]