South Korea’s Financial Supervisory Service Tightens Oversight, Imposes Stricter Penalties for IT Failures and Mis-selling
The Financial Supervisory Service (FSS) of South Korea is increasing its scrutiny of financial institutions, signaling a zero-tolerance policy for both mis-selling of financial products and IT system failures. The move comes as the FSS aims to bolster financial consumer protection and address recent incidents, including losses related to Hong Kong’s Hang Seng Index-linked Exchangeable Linked Securities (ELS) and recurring computer glitches at major financial firms.
Stricter Penalties for Mis-selling
Lee Se-hoon, Senior Deputy Governor of the FSS, has warned that future instances of mis-selling, similar to the recent Hong Kong ELS incident, will be met with the full extent of legal sanctions, without reduction. This represents a shift from the FSS’s previous approach of potentially reducing penalties for institutions that proactively compensate affected customers. According to the FSS, the total potential sanctions across the banking sector could reach approximately 4 trillion won if reductions were not applied.1
The FSS views the ELS incident as an example of shortcomings in formal controls, noting that although checklists may be in place, proper explanations during the sales process were lacking. This underscores a broader emphasis on substance-oriented supervision, prioritizing genuine consumer protection over mere compliance with procedural requirements.
Addressing IT System Failures
Alongside stricter penalties for mis-selling, the FSS is also focusing on the increasing number of computer failures at Big Tech firms, virtual asset operators, and internet banks. Lee Se-hoon emphasized that many of these incidents stem from “basic management negligence” rather than complex technical issues.1
The FSS plans to impose clear financial penalties for such negligence and is urging these institutions to increase investment in IT capabilities and strengthen internal controls. The agency will also minimize reductions in fines for obvious cases of poor management, such as inadequate testing.1
FSS Leadership and Priorities
Lee Chanjin assumed the role of Governor of the Financial Supervisory Service on August 14, 2025, with a three-year term that may be renewed once.4 He is supported by four Senior Deputy Governors, including Lee Se-hoon, who is responsible for planning and digital finance.4
In April 2025, Lee Se-hoon met with representatives from nine major corporate General Agencies (GAs) to urge them to strengthen their internal control capabilities and exercise caution when appointing planners involved in illegal activities.2
Looking Ahead
The FSS’s increased focus on both consumer protection and IT risk management signals a significant shift in regulatory priorities. By emphasizing stricter penalties and a move towards substance-oriented supervision, the agency aims to create a more stable and trustworthy financial environment for consumers and investors in South Korea.
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