Financial Supervisory Service (FSS) Gov. Lee Bok-hyun announces the watchdog's work plans for 2025 during a press conference at FSS headquarters in Seoul, Monday. Yonhap

The Financial Supervisory Service (FSS) will support the establishment of an accountability framework within financial institutions this year, vowing to prevent misconduct by taking strict measures against irresponsible executives and employees under its zero-tolerance policy, FSS Gov. Lee Bok-hyun said Monday.

While unveiling the organization's work plans for 2025, the head of the financial watchdog said it will also strengthen the inspection of regulatory loopholes and improper lending practices within banks and other financial institutions.

This initiative follows a series of recent financial misconduct scandals, including the discovery of 482 cases of inappropriate loans amounting to 387.5 billion won ($267 million) at Woori Bank, KB Kookmin Bank and NH NongHyup Bank during the watchdog's 2024 regular inspections.

Lee also stated that the FSS will accelerate efforts to advance the capital market and complete the establishment of an electronic system for preventing illegal short selling within the first quarter of this year.

"We will uphold a zero-tolerance policy on large-scale mis-selling, major financial accidents and illegal acts driven by self-interest while maintaining a strict stance against unfair activities in the capital market," Lee said during a press conference.

"We will also support the smooth introduction and establishment of an accountability framework to restore trust in the financial industry and strengthen market discipline. By addressing fundamental issues such as short-term performance-driven management practices that encourage unfair behavior, weak internal controls and a lack of ethical awareness, we will ensure that financial institutions become trustworthy entities for the public."

The accountability framework is a system that designates the final person responsible for financial firms' major operations in advance, preventing internal control responsibilities from being shifted to lower-level employees or organizations when financial misconduct is uncovered.

Since January, this system has been implemented in financial holding companies and banks. According to the FSS, it will also be introduced in major securities firms and insurers in July.

The FSS will actively cooperate with law enforcement authorities to ensure appropriate legal action and the recovery of damages if criminally suspicious activities are uncovered during its inspections.

Employees are seen at Woori Bank's headquarters in Seoul, Aug. 27, when prosecutors were conducting a raid in connection with improper loans extended to relatives and associates of former Woori Financial Chairman Son Tae-seung. Korea Times file

In order to advance the capital market, the FSS plans to improve systems related to corporate credit offerings, note issuance and investment management accounts within the first quarter, enabling investment firms to efficiently supply venture capital to innovative companies.

It will also establish proactive screening criteria for new types of funds to support the launch of creative financial products.

Ahead of the resumption of short selling at the end of March, the FSS will complete the establishment of an electronic system to prevent illegal short selling and conduct connectivity tests between securities firms and the central monitoring system.

The country's ban on short selling was put in place in November 2023 and was originally set to expire at the end of June 2024. But it was pushed back to March 31 this year.

As for managing household debt, the FSS will continue to encourage a gradual decline by preparing for the implementation of the third phase of stressed debt service ratio (DSR) rules.

The stressed DSR regulation adds an extra stress factor when calculating the amount of the principal and interest a borrower must pay relative to their annual income. This measure effectively lowers the maximum loan limit. The first and second phases of the regulations took effect in February and September last year, respectively.

"Amid growing political and economic uncertainties, the FSS is committed to carrying out its responsibilities with a heightened sense of urgency and accountability," Lee said. "This year, we have established 14 key initiatives under five strategic goals — stability, trust, co-prosperity, future growth and reform — to enhance supervisory services for the public and the financial industry."