Cha & Kwon responded to the Financial Supervisory Service’s (hereafter the “FSS”) partial inspection on behalf of domestic financial corporation. (Nov.2020 ~ Closed on Mar.2021.)

 

This inspection proceeded after pre-notice was given.

 

In this case, the FSS inspection continued for five months because the FSS required document submission for over 5 months and adhered to inspection practices.

 

For example, while the Supreme Court judicial precedent classified the client’s business conducts as a single business product, the FSS divided the identical product into different legal relationships, aiming to maximize the amount of violation. Furthermore, for fact relevances that should be legally classified as one legal relationship, the FSS separated the relationship into several fact relations.

Thus, by writing more than 10 legal opinion and references, Cha & Kwon claimed that the FSS conducts are different from those of the Supreme Court and that the amount of violation is excessive due to inconsistent calculation formula. As a result of such efforts, the FSS revised the prosecutor’s opinion to alleviate the amount of violation to 20% of the initial declared amount.

 

For financial inspection response, if the financial institutes respond alone, they mostly require help from outside advisors. This is because even though they have adequate response logic, they fail to appropriately vindicate their logic, or spend overtime setting the specific composition or the writing direction of the references. This results in inadequate time to actually start writing the references or even if the references are properly written, the institutes may not be able to do business activities due to employee task overload.

 

In FSS inspection, organizing and submitting references is necessary so that the inspection team can sympathize with the institute’s situation when writing about the inspection preparation, establishing inspection response process, preparing response method for each issue, or writing references requested from the FSS.

 

(1)

 

There are two types of FSS inspection—a pre-noticed inspection and unnoticed inspection. For pre-noticed inspection, the financial institute needs to:

1) first, review the issues in the recent 1-2 years in the industry, the institute’s innate situation and disputes with third parties,

2) then predict the issues and the direction of the inspection

3) and then prepare response strategies.

 

For un-noticed inspections that start suddenly, institutes first need to figure out inspection subjects from the inspection teams’ questions and requested references. (Reviewing the issues in the recent 1-2 years in the industry, the institute’s innate situation and disputes with third parties are a must.)

 

(2)

The following inspection response process designates a inspection manager. The manager needs to first understand what references are being requested orally or in written form, inspection institute entry details of the employee, and the questions to and answers from the institute. From these information, the manager needs to decide the direction of the inspection and its progress status.

 

Moreover, the manager needs to understand the relevant issues, and the agents, inspector, assistant involved in the issue.

 

(3)

When there is a reference request, unless it is a reference simply for fact confirmation such as certified corporate registration, such requested references are usually related to specific issues. In such cases, it is crucial to identify the predicted issues and fact relations earlier than the inspection institute.

 

ㅇBusiness executives predict that the staffs will recognize the relations because they are related to the corporation business. However, under the FSS inspection process, fact relations may differ due to different positions of the business post and the manager.

 

However identical the memories are on the overall fact relations between the business post and the manager, difference remains on specific and technical details. But it is these technical details that have huge effect on the case’s overall content or the responsibility of each post’s manager. (For example, if several posts collected data and made business decision only to find that there was a subtle difference in data collecting standards, the question as to who allowed such difference arouses.)

 

 

ㅇ While the requested contents are inclusive and abstract, the references actually used in practice are not only broad but also specific and respective. Thus deciding on the scope of the references is important when preparing the documents.

 

ㅇ Moreover, the manager could have resigned from the office or the memory the manager, who repeats similar tasks, could have been mixed with memory from other tasks and thus could be incorrect. In the case of the institutes, difference exists between the official situation that appears on official papers and the actual agendas of working stage. The tasks are conducted through various channels such as email, messenger, phone calls, and meetings, resulting in contradiction between the manager’s memory and what the financial flow, specific emails, messengers, and papers say.

 

In such situations, first, the circumstances of the past business situation need to be identified accurately by collecting various references. Then, based on the situation, a strategy needs to be prepared to persuade the prosecutors about the issue and the conditions of the manager and the executives of financial institutions.

 

 

ㅇFinally, the prosecutor team and the financial institute may interpret differently on the applied legislation or system of one identical fact relation. In this case, objective references that reflect the financial institute’s situation and that persuade the prosecutors need to be prepared.

 

 

(4) Since the practitioner and the prosecutor might have different opinions on what a rational decision making is under certain situations, the references must be written in a way so that the prosecutor team can deeply sympathize with the various situations of the practitioner.

 

(5) Finally, all the references written during the inspection process must be written under the assumption that they could be used as evidentiary material for sanctions on appeals proceedings (e.g. sanction process of the FSS or the FSC, and administrative litigation) or for attack, defense in lawsuit situations.

 

Cha & Kwon provides prediagnosis and response system to prepare for the FSS inspection.