REGULATION

ON

EXAMINATION AND SANCTIONS AGAINST FINANCIAL INSTITUTIONS

Regulation on Examination and Sanctions Against Financial Institutions

CONTENTS

I.	General Provisions

§1.	Purpose

§2.	Scope of Application

§3.	Definitions

§4.	Administrative Principle of Examination

§5.	Illegal or Improper Acts Subject to Sanctions

II.	Operation Of Examination

§6.	Authority and Responsibility of Examiners

§7.	Off-site surveillance of Financial Institutions

§8.	Conducting of Examinations

§9.	Request for Submission of Documents, Etc.

§10.	Hearing of Opinions Concerning Illegal or Improper Activities

§11.	Management of Materials Relating to Examination

§12.	Efficient Performance of Examination

III.	Report Of Examination Results And Request For Follow-up Measures

§13.	Report of Examination Results

§14.	Notification of Examination Results and Measures

§15.	Readjustment Period and Report with Respect to Required Follow-up Measures

§16.	Limiting Self-Discipline

§16-1. The Board of Directors' Duty to Review the Report of Examination

IV.	Disposition Of Examination Findings

Section 1. Sanctions Types And Criteria

§17.	Sanctions against Institutions

§18.	Sanctions against Officers

§19.	Sanctions against Employees

§20.	Imposition of Fines & Surcharges

§21.	Other Measures

§22.	The Effect of Sanctions

Section 2. Increase and Reduction and Exemption of Sanctions

§23.	Reduction and Exemption of Sanctions Against Financial Institution and	Officers

§24.	Increase of Sanctions Against Officers

§25.	Increase and Reduction and Exemption of Sanctions against Employees

§26.	Sanctions Against Loan Officers and Others

§27.	[Deleted]

§28.	[Deleted]

Section 3. Concurrent Imposition of Sanctions

§29.	Concurrent Imposition of Sanctions against a Financial Institution or its officers, or employees

§30.	Concurrent Imposition in Prosecuting and Notifying the Board of Criminal Investigation

§31.	Concurrent Imposition of Fines and Surcharges

§32.	Concurrent Imposition of Reimbursement

Section 4. Sanction Procedure

§33.	Establishment of Deliberation Committee

§34.	Sanction Procedure

§35.	Procedure for Imposing Fines

§36.	Procedure and Others for Objection

§37.	Reconsideration

§38.	Report to the Board of Directors

V.	Internal Control And Financial Incident Report

§39.	Internal Control

§40.	Self-examination

§41.	Financial Incident

§42.	Report of Important Information

VI.	Supplementary Provisions

§43.	Prior Deliberation by SFC

§44.	Special Case of Sanction against Securities and Futures Companies

§45.	Special Case of Sanction against Insurance Companies, etc.

§46.	Special Case of Sanction against Foreign Financial Institutions

§47.	Special Case of Sanctions against Credit Unions, etc.

§47-1	Exceptions to Delegated and Consigned Examination

§47-2.	Exceptions to the Examination of Persons Subject to Conversion

§47-3.	Exceptions to the Examination of the Usury Business

§48.	Detailed Matters

Addenda

Enacted on December 29, 2000. FSC 2000-131

Amended on February 28, 2001. FSC 2001-10

Amended on November 13, 2001. FSC 2001-91

Amended on May 15, 2002. FSC 2002-28

Amended on March 6, 2003. FSC 2003-15

CHAPTER I.

GENERAL PROVISIONS

§1. Purpose

The purpose of this Regulation on Examination and Sanctions Against Financial Institutions (hereinafter referred to as Regulation) is to set forth provisions on the method of examination, the processing of examination results, sanctions following an examination and other necessary matters for the examination and sanction conducted by the Governor of Financial Supervisory Service (hereinafter referred to as "Governor") in accordance with the Act on Establishment of Financial Supervisory Organizations (hereinafter referred to as "Act") and its Enforcement Decrees, the Related Financial Statutes (as defined below) and their enforcement decrees, and other relevant statutes.

§2. Scope of Application

(1) This Regulation shall apply to financial institutions examined by the Governor in accordance with Article 37, subparagraphs 1, 2 ＊ 4 of the Act.

(2) With respect to examinations of financial institutions with which the Governor is entrusted with pursuant to relevant statutes and sanctions as a result of such examinations, this Regulation shall apply except when different provisions have been prescribed by the relevant statues or such organization.

§3. Definitions

The terms used in this Regulation shall be defined as follows:

1. The term "Related Financial Statues" means

a. The Banking Act

b. The Korea Development Bank Act

c. The Industrial Bank of Korea Act

d. The Export-Import Bank of Korea Act

e. The Trust Business Act

f. The Securities and Exchange Act

g. The Securities Investment Trust Business Act

h. The Futures Trading Act

i. The Securities Investment Company Act

j. The Insurance Business Act

k. The Merchant Banking Corporation Act

l. The Credit-Extension Specialized Financial Business Act

m. The Mutual Savings and Banking Act

n. The Credit Cooperatives Act

o. The National Agricultural Cooperatives Act

p. The National Fisheries Cooperatives Act

q. The National Forestry Cooperation Act

r. The Act on Effective Management of Non-Performing Assets of Financial Institutions and Establishment of Korea Asset Management Corporation

s. The Act on Utilization and Protection of Credit Information

t. The Act on Indemnification for Fire-Caused Loss and Purchase of Insurance Policies

u. The Act on Asset Securitization

v. The Mortgage-Backed Securitization Company Act

w. The Trust Act on Issuing Secured Bond

x. The Industry Development Act

y. The Foreign Exchange Trading Act

z. The Investment Company Act for Corporate Reorganization

aa. The Financial Holding Company Act

2. The term "financial institution" means a company, relevant organization or an association that is subject to the Act and relevant financial statutes in respect of its establishment, dissolution, business authorization, permission and approval, or supervision and examination. <Amended March 6, 2003>

3. The term "general examination" means an examination comprehensively conducted over the entire operation and property of the financial institution.

4. The term "partial examination" means an examination conducted over a specific part of a financial institution in order to prevent financial accidents and firmly establish financial order or out of other needs for financial supervisory policy purposes.

5. The term "on-site examination" means an examination conducted with examiners visiting a financial institution.

6. The term "document examination" means an examination conducted with examiners requesting and reviewing documents of a financial institution.

7. The term "examiner" means a person conducting an examination by an order and instruction of the Governor.

8. The term "matters requiring measures" means the items that the Governor demands measures including the management measures need to attended to, the indication and the on-site measure against a financial institution under Article 3, subparagraphs 9, 10 and 11.

9. The term "management matters requiring attention mean matters that the management needs to pay its attention to or take measures on with respect to managerial weakness discovered during the examination of a financial institution.

10. The term "matters which need to be pointed out" mean illegal and improper operation process matters or matters that require improvements, such as operation process matters revealed in the examination results of the financial institutions. Such shall be classified as disciplinary, reimbursement, improvement, correction or cautionary matters.

11. The term "on-site measure items" means the items that examiner in charge takes correction or attention on more minor than illegal or unjust operations founded in the on-site examination on a financial institution.

12. The term "information items" mean various policy reference materials, report on the movements of financial institution or companies, and model cases of financial institutions used for the purpose of promoting a rational implementation of financial and supervisory policies.

13. The term "suggestion items" mean opinions for improvement expressed with respect to problems, etc. that have surfaced in the process of implementing a financial and supervisory policy.

14. The term "management status evaluation" means evaluation by means of a comprehensive and unified method of the financial situation, asset soundness, and management capability of a financial institution.

15. The term "off-site surveillance" means a supervisory method that induces sound operation of financial institutions by taking necessary measures at an appropriate time. For instance, during the period an on-site examination is not conducted on financial institutions, potentially problematic financial institutions or weak areas are detected early by analyzing their business situation, reviewing reports relating to their financial situation, quantitatively evaluating their management situation, and collecting and analyzing various materials and information, and the results of this are connected to an on-site examination.

16. The term "financial statutes" means the Act on Establishment of Supervisory Organization; the Act on Structural Improvement of Financial Industry; the Act on Real Name Financial Transaction and Protection of Confidentiality (hereinafter referred to as "Real Name Financial Transaction Act"); financial statutes mentioned in Article 3 subparagraph 1 of the Examination Regulation, their enforcement Decree and Detail enforcement Regulations; regulations, orders, and instructions issuing under relevant statues;

17. The term "financial customers" means those who make transactions with financial institutions, such as depositors, borrowers, investors, insurance policy holders, and beneficiaries;

18. The term "sanction" means the measures taken by the FSC or the governor against a financial institution or its officers and employees pursuant to this Regulation on the basis of the FSS's examination results;

19. The term "disciplinary actions " means the punishment on personal status such as dismissal from office, suspension from office, salary reduction, and reprimand that are imposed by the head of the concerned organization upon its officials by the request of the governor.

§4. Administrative Principle of Examination

(1) The focus of an examination of a financial institution shall be to induce sound management of financial institutions, maintain fair financial transaction order and protect customers of financial institutions.

(2) The Governor shall apply efforts to find managerial problems and show direction for resolving them by analyzing and evaluating the management status of financial institutions and to collect suggestions and difficulties by meeting with their management.

(3) The Governor shall make efforts to improve self-inspection capability of financial institutions and to prevent double examinations. In addition, he shall make efforts to raise the efficiency of examination and to rationally manage the examination staff, wisely utilizing document examination if necessary.

§5. Illegal or Improper Acts Subject to Sanctions

Any financial institution or its officers or employees, which commit an act falling under one of the following shall be subject to sanctions:

1. Cases where there are violations of a financial statute or negligence in performing the duty under such statute;

2. Cases where there is a commission of a crime, such as usurpation, malfeasance in office, theft, and receipt of bribery in connection with their duties;

3. Cases where sound management and operation of the financial institution are hindered, thereby undermining its effective management or hurting the interests of the financial institution or financial customers;

4. Cases where the public confidence of a financial institution is damaged or social order has been disturbed on account of financial incidents, etc.;

5. Cases where obstacles or disputes are deliberately or mistakenly created with respect to a duty;

6. Cases where a supervisor fails to faithfully perform his or her supervisory duties;

7. Cases where there is confusion with respect to the credit order of the financial market or their duties have been improperly or unsoundly performed.

CHAPTER II.

OPERATION OF EXAMINATION

§6. Authority and Responsibility of Examiners

(1) An examiner, when necessary for performing his or her examination duties, may take the following measures:

1. Request submissions of certificates, confirmations, opinions, answers to inquiries, and other relevant documents and objects;

2. Sealing of safes, registers, articles and other storage places;

3. Request the appearance and statements of a relevant person of the financial institution concerned; and

4. Other measures taken which are deemed necessary for the examination.

(2) No examiner shall commit an act falling under the following in connection with his or her examination duties:

1. Force officers and employees of a financial institution for an improper loan, or receive money or other benefits;

2. Disclose to others information obtained during his or her duty or use such information for purposes other than for his or her duty;

3. Deliberately conceal the illegal or improper activities of officers and employees of a financial institution.

§7. Off-site Surveillance of Financial Institutions

(1) The Governor shall make efforts to make early detection of potentially problematic financial institutions or weak areas through off-site surveillance of financial institutions.

(2) Based on the results of the off-site surveillance mentioned in paragraph (1) above, the Governor may take necessary measures for supervision and examination purposes and the type of measures shall be in accordance with those separately provided for by the Governor.

§8. Conducting of Examinations

(1) The Governor shall conduct an examination over the operation and property status of a financial institution or specific areas in accordance with Article 37 of the Act, the Related Financial Statutes and other relevant statutes.

(2) Except for instances otherwise specified, the Governor shall conduct examinations with respect to financial institutions, which the Financial Supervisory Council allows the examination to be conducted by the Governor pursuant to relevant statutes.

(3) Examinations shall be classified as general examinations and partial examinations and may be conducted either on-site or by document.

§9. Request for Submission of Documents, Etc.

(1) Where necessary for carrying out on-site examination and off-site monitoring businesses, the Governor may require financial institution to report or submit data on its operation or properties in accordance with Article 40 of the Act and may also require relevant persons or parties of affidavit, testimony, or books and other documents pursuant to the Securities and Exchange Act, the Insurance Business Act and other relevant statutes.

(2) Submission of data under paragraph (1) may be undertaken in an electronic document form through the information and communications network prescribed under the provisions of the Act on Promotion of Information and Communications Network and Information Protection.

§10. Hearing of Opinions Concerning Illegal or Improper Activities

(1) With regard to the illegal or improper activities uncovered during an examination of a financial institution, the Governor shall give an opportunity for the financial institution concerned or its officers or employees to state their opinions.

(2) The methods for providing statement of opinion mentioned in paragraph (1) above, shall be separately determined by the Governor.

§11. Management of Materials Relating to Examination

With an overall understanding the Governor shall manage materials needed for the examination, such as the circumstances when conducting the examination of financial institution, evaluation results of management status, information and suggestions.

§12. Efficient Performance of Examination

For efficient examination performance, the Governor shall establish an information exchange system among related institutions and make efforts to research and develop examination technique.

CHAPTER III.

REPORT OF EXAMINATION RESULTS AND REQUEST FOR

FOLLOW-UP MEASURES

§13. Report of Examination Results

(1) If an examination is conducted in respect of a financial institution, the Governor shall organize the results and report to the FSC pursuant to the provisions of Article 59 of the Act on the Establishment of Financial Supervisory Organization; provided, however, where necessary after giving considerations to matters including, but without limitation, type of examination and business scale, a report summarizing the results may be delivered. In the event of a partial examination of a specific area of a financial institution limited to on site measures or absent follow up measures, reporting of the results may be omitted.

(2) Results of the examination conducted by a third party institution delegated or consigned pursuant to the provisions of Article 47-1 shall be reported to the Governor, the same which shall be reported to the FSC by the Governor in accordance with paragraph (1).

(3) The Governor may separately determine the related matters with the report before the FSC set forth in paragraph (1) above.

§14. Notification of Examination Results and Measures

(1) The Governor shall notify the examination results to the concerned financial institution through a report and may take necessary measures or request the head of the concerned financial institution to take such measures.

(2) The report of the examination results and follow-up measures as described in paragraph (1) above shall be classified as follows:

1. Management matters needed to be attended to.

2. Matters pointed out

a. Disciplinary matters

Matters where sanctions such as, imposition of fines, cautionary warnings against financial institution and officers or more severe measures, or disciplinary measures corresponding to suspension, salary reduction or reprimand are taken with respect to acts by the financial institution or its officers and employees in violation of Related Financial Statutes or acts which hinder sound business or work and thereby disrupting credit order or threatening the management of the concerned financial institution.

b. Reimbursement matters

Matters where there is reimbursement responsibility because of a violation of the Related Financial Statutes due to an intentional conduct or gross negligence by officers and employees of the financial institution and thereby there has been damage to the assets of such financial institution.

c. Matters requiring improvement

Matters where regulations, systems or operation are unreasonable that they require improvements.

d. Matters requiring correction

From matters deemed to be illegal or improper, those which need to be corrected or reinstated back to its original state by means of additional collection, recollection, preservation and other methods.

e. Cautionary matters

Matters that are deemed to be illegal or improper but where correction or reinstatement to its original state is impossible or reinstatement has no actual value and is negligible.

3. Matters requiring on-site measures

(3) The Governor shall supervise the financial institution's execution of the requested measures as described in paragraph (1) above; provided, however, that on-site measures shall be delegated to the director of the financial institution's own internal supervision organization or to the chief executive officer (CEO) of the concerned financial institution and the requested follow-up measures with respect to the National Association of Credit Union, National Agricultural Cooperative Association, National Association of Fisheries Cooperatives·National Wood Cooperative Association may be delegated to the central chairman established pursuant to the incorporation laws of the aforementioned associations.

(4) The Governor may notify to the supervisory authority of the financial institutions of illegal and improper activities of the financial institutions to which the sanctions described in Chapter 4 pursuant to the relevant laws and regulations are not applicable. The Governor may notify to the CEO of the financial institutions, supervisory authority of the financial institutions and those who have power to appoint and dismiss officers of the illegal and improper activities of the financial institutions to which sanctions described in Chapter 4 pursuant to the relevant laws and regulations are not applicable

§15. Readjustment Period and Report with Respect to Required Follow-up Measures

(1) With respects to the required follow-up measures as described in Article 14 paragraph (1) above, a financial institution, except when there is a special reason, shall make readjustments during the period determined below from the date of receipt of the report and shall report to the Governor the results within ten (10) days from the expiration date of such period in a form prescribed as in <annexed form>.

1. Management matters needed to be attended to: within 6 months

2. Matters pointed out

a. Disciplinary matters: within one (1) month for personnel measures with respect to related officers and employee and within three (3) months for matters requiring improvements or corrections; and

b. Matters requiring reimbursement, improvements or correction: within 3 months

(2) If the Governor determines that follow-up measures was poorly done because of negligence or incompleteness of related officers and employees, he may discipline those who are responsible for it as described in chapter 4.

§16. Limiting Self-Discipline

(1) A financial institution shall not arbitrarily take personal disciplinary measures or other measures against officers and employees whose illegal or improper activities have been discovered during the examination by the Governor prior to a sanctions request by the Governor.

(2) Financial institutions shall take the following action against officers and employee who are expected to receive disciplinary measures beyond a suspension as a result of the financial institution's own internal examination:

1. If illegal and improper activities have been clearly identified, officers and employees in connection with those activities shall be removed from their positions without delay; provided, however, that they shall not be dismissed until their disciplinary measures have been determined.

2. If officers and employees in connection with those activities, submit resignation letters, financial institutions shall investigate the reason behind the resignation and take necessary measures, such as disciplinary measures or preservation of compensation prior to the termination of the employment contract takes effect pursuant to Article 660 of the Civil Code and related laws and regulations.

§16-1. The Board of Directors' Duty to Review the Report of Examination

For efficient management control, Board of Directors of a financial institution shall inspect examination report notified by the Governor pursuant to the provisions of Article 14 paragraph (1); provided, however, exception may be granted where overseas residence, diseases and other reasonable circumstances make the review impossible.

CHAPTER IV.

DISPOSITION OF EXAMINATION FINDINGS

Section 1.

Sanctions Types and Criteria

§17. Sanctions against Institutions

(1) The types of and reasons for sanctions against institutions pursuant to Article 43 of the Act on Establishment of Financial Supervisory Organization, and Article 14 paragraph (2) of the Act on Structural Improvement of Financial Industry, and the relevant financial statutes are as follows:

1. Cancellation of business authorization, permission or registration

a. Cases where the public faith of the financial institution has been apparently damaged or the credit order of the finance industry has been greatly disrupted due to continuous violation of relevant financial laws;

b. Cases where the management of the financial institution has been seriously jeopardized or has brought upon material loss to the concerned financial institution or its customers by conduct which greatly obstructs sound operation and work of the financial institution;

c. Cases where in spite of receiving a suspension measure with respect to the entire or partial operation and work of the financial institution, such operation or work is continued or the same or similar illegal or improper activities are repeated;

d. Cases where the Governor deems that existence of the financial institution which has received measures set forth in subparagraphs 2 to 5, has no value.

2. Suspension of business or operation in its entirety or in parts

a. Cases where the public faith in the financial institution is damaged or the credit order of the finance industry has been disrupted due to continuous violation of the related financial statutes;

b. Cases where the management of the financial institution has been seriously jeopardized or has brought upon financial loss to the concerned financial institution or its customers by conduct which obstructs sound operation and work of the financial institution.

c. Cases where in spite of receiving closing of business or full or partial suspension order of business office set forth in subparagraph 3 below or suspension of illegal or improper activities set forth in subparagraph 4 below, the business of the concerned business office or such activities are continuously carried out.

d. Cases where in spite of receiving a warning against the disciplined institution as set forth in subparagraph 7 below, the same concerned or similar activities are continuously carried out.

3. Closing of business office or full or partial suspension of business office

Cases where the illegal or improper activities of the financial institution falls under subparagraph 2 above or in cases limited to the concerned business office, instances where closing of the concerned business office or full or partial suspension of the business is necessary based on the importance of the illegal or improper activities.

4. Suspension order of the illegal or improper activities

Cases where the illegal or improper activities of the financial institution are continuing and need to be immediately suspended.

5. Transfer of contracts

Cases where the untruthful financial institution pursuant to Article 2 subparagraph 3 of the Act on Structural Improvement of Financial Industry have difficulties to the common and sound management under Article 14 paragraph (2) of the Act

6. Public announcements or notice of illegal activities

Cases where the Governor deems that he need announce or post up the illegal or unjust activities of financial institution on daily paper, periodical publication, etc. or at the branch office of financial institution

7. Severe disciplinary warning against institution

a. Cases where they fall under items a and b of subparagraph 2 above but its violation is relatively light.

b. Cases where the motivation and consequence of the illegal or improper activities of the financial institution are as follows:

(1) Cases where the illegal or improper activities are attributable to the management directives or posture of the financial institution.

(2) Cases where the illegal or improper activities have been carried out systematically at departments or branch offices where there are many relevant branch offices.

(3) Cases where the officer was the main offender connected to the illegal or improper activities or many officers were connected to such illegal or improper activities.

(4) Cases where similar forms of public complaint has been filed as a collective or the scale of damage by the financial customer was great.

(5) Cases of severe violation of the Act on Real Name Financial Transaction and Protection of Confidentiality.

(6) Cases where the illegal or improper activities were attributable to material negligence of internal control or supervision of financial institution, which have reported or notified to the investigation authorities.

c. Cases where the financial incidents were attributable to the negligence of internal control duties of the financial institution and the loss exceeds 2% of current capital as of the recent quarter (if below 2% of capital, then one (1) billion won) or 10 billion won.

d. Cases where bad loans (sum amount of loans categorized as "questionable collection" or "presumed loss" according to categorization standards of sound assets set forth under the related provisions on supervision of the financial institution) which exceed the ratio set forth in <reference 1>, have newly been generated.

e. Cases where the illegal or improper activities or the same or similar activities are repeated in spite of receiving a disciplinary warning against institution set forth in subparagraph 8 below.

8. Disciplinary warning against financial institution

a. Cases where the circumstances can be taken into consideration in spite of that the illegal or improper activities of financial institution fall under items a and b of subparagraph 7 above.

b. Cases where the financial incidents were attributable to negligent internal control of the financial institution and thereby the loss of the recent quarter exceeds 1% of capital (if 1% of the capital is below 500 million won, then 500 million won) or 5 billion won or such loss is expected.

c. Cases where bad loans attributable to illegal or improper loaning by the financial institution, which exceed the ratio set forth in <table 1>, have been newly generated.

(2) If a financial institution falls under any subparagraphs under Paragraph (1) above, the Governor may recommend to the FSC to take such measures under paragraph (1) subparagraphs 1 to 6 or may take measures under subparagraphs 7 and 8 under Paragraph (1) above.

§18. Sanctions against officers

(1) The kinds of and the reasons for sanctions against officers of a financial institution pursuant to Article 42 of the Act, Article 14 paragraph (1) of the Act on Structural Improvement of Financial Industry, or provision of the Related Financial Statutes, are as follows:

1. Dismissal from office

a. Cases where the financial order is considerably disrupted or the creditworthiness of the financial institution is defamed by intentional material violation of improper activities.

b. Cases where the management of the concerned financial institution is seriously jeopardized or a material financial loss is brought about to the concerned financial institution or its customers by acts considerably hindering sound operation of the financial institution.

c. Cases where severe financial loss occurs to financial customers or there may be concerns of such loss or evasion of a timely corrective measures set forth under Article 10 of the Act on Structural Improvement of Financial Industry on account of the financial statements, intentionally or out of gross negligence, containing false facts or not containing important facts.

d. Cases where acts falling under causes for dismissal as determined under other relevant financial statutes.

2. Suspension of business execution

Cases where circumstances can be taken into consideration in spite that the illegal or improper activities fall under each item of subparagraph 1 above.

3. Severe disciplinary warning

a. Cases where a Related Financial Statute has been violated or an obligation has been performed negligently

b. Cases where financial order disturbed due to activities in violation of bylaws of the institution concerned

c. Cases where a report, which the Governor request pursuant to the Act or the Related Financial Statutes, is falsely made or has been submitted negligently

d. Cases where they refuse, impede, or evade examination or supervision by the FSS pursuant to the Act or relevant financial statutes

e. Cases where orders, instructions, or disciplinary requests by the FSS, the FSC or other supervising authorities have been performed negligently.

f. Cases where activities that obstruct sound operation of the financial institution are conducted.

4. Disciplinary warning

Cases where there exist circumstances that can be taken into consideration or the illegal or improper activities are considered relatively minor in spite that they fall under each items of subparagraph 3.

(2) When the Governor deems that an officer of the financial institution falls under any subparagraph under Paragraph (1) above, he or she may recommend that the FSC to take the necessary measures with respect to such officer pursuant to subparagraph 1 or 2 under Paragraph (1) above and may take measures pursuant to subparagraph 3 or 4 under Paragraph (1) above.

(3) If the FSC takes measures set forth in subparagraphs 1 or 2 under Paragraph (1) above, the head of the concerned financial institution shall take necessary measures without delay and report the result thereof to the Governor.

(4) The period of suspension of business execution mentioned in subparagraph 2 under Paragraph (1) above shall be up to six (6) months.

§19. Sanctions against Employees

The Governor shall request for sanctions against employees to the financial institutions, such as dismissal from office, suspension of office, salary reduction, and reprimand, in accordance with Article 41 of the Act and the relevant financial statutes, etc.

§20. Imposition of Fines & Surcharges

(1) When a financial institution or its officers or employees commit an act in violation of the financial statutes subject to imposition of fines or surcharges, the Governor may recommend the FSC to impose fines or surcharges.

(2) If imposition of fines or surcharges is recommended to the FSC as mentioned under Paragraph (1) above, it shall be in accordance with the imposition standards for fines set forth in the annexed <table 2> or with the imposition standards of surcharges as set forth in the annexed <table 3>.

§21. Other Measures

(1) The Governor may take the following measures when a financial institution, its officers or employees commit an illegal or improper act:

1. Claim for reimbursement of financial loss when the Governor deems that the officers or employees bring out a financial loss to the institution and are responsible for the reimbursement of the loss.

2. Request submission of memorandum when the Governor deems that he or she needs to receive from the head of the concerned financial institution or related persons a promissory statement to prevent any recurrence.

(2) When a financial institution, officers, or employees of the institution conduct an illegal or improper act, the Governor may request that the head of financial institution should improve or correct its process of business operation or the matter be paid attention to.

§22. The Effect of Sanctions

(1) The head of the institution indicated in the warning statement against the financial institution deems to have taken measures pursuant to subparagraphs 3 or 4 under Article 18. paragraph (1) when a financial institution is taken measures pursuant to subparagraphs 7 or 8 of Article 17. paragraph (1).

(2) When an officer of financial institution is taking measures pursuant to subparagraphs 1 to 3 under Article 18 paragraph (1) the appointment of officer is restricted to certain period pursuant to the relevant financial statutes or regulations on supervision of relevant financial institutions.

Section 2.

Increase and Reduction and Exemption of Sanctions

§23. Reduction and Exemption of Sanctions Against Financial Institution and Officers

The Governor may reduce and exempt or cancel sanctions against a financial institution as set forth in subparagraph 7 item d and subparagraph 8 item c of Article 17 paragraph (1) and the sanctions against officers set forth in Article 18 on account of bad loans in cases of the following subparagraphs and other inevitable circumstance:

1. Case that it was caused by general financial and economic environment's regression

2. Case that it was executed for the necessity of national industrial policy

3. Case that it was recognized that adequate credit inspection and sufficient review of the business program were performed in advance

4. Case that it was caused by the change of FLC (Forward Looking Criteria)

5. Case that it was evaluated that CAMEL's grade is going up more than one with outstanding management in comparison to the preceding term

6. Case that it was caused by inevitable circumstances

§24. Increase of Sanctions Against Officers

(1) The Governor may increase sanctions against officers in case of following subparagraphs when officer repeats the similar illegal or improper activities after he was sanctioned as a main offender:

1. 'Suspension of business execution' can be imposed when the officer is involved in similarly illegal activities after he or she received a 'severe disciplinary warning.'

2. 'Severe disciplinary warning' can be imposed when the officer is involved in similar illegal activities after he or she received a 'disciplinary warning.'

(2) If two illegal or improper acts of an officer, which are unrelated to each other, are concurrent at the same examination, the Governor may increase the sanction up one grade with the following exceptions:

1. Case where the most sanction is above the 'suspension of business execution.'

2. Case where the concurrent illegal acts are related to the goals and means.

3. Case where the concurrent illegal acts are actually one.

§25. Increase and Reduction and Exemption of Sanctions against Employees

(1) A sanction against employees may be increased when such employees are involved in many illegal or improper activities, which are repeated.

(2) A sanction against employees may be reduced and exempted and cancelled in consideration of public or other extenuating circumstances.

§26. Sanctions Against Loan Officers and Others

Sanctions against loan officers and others shall be cancelled if they carried out bona fide duties in accordance with the relevant regulations in spite that loans had become bad and there were securities investment losses.

§27 and 28 [deleted]

Section 3.

Concurrent Imposition of Sanctions

§29. Concurrent Imposition of Sanctions against a Financial Institution or its Officers, or Employees

(1) When financial institutions, its officers or employees are imposed with sanctions and surcharges on account of their illegal or improper activities under Articles 17 through 19, the Governor may prosecute and notify the board of criminal investigation and recommend FSC to impose surcharges and fines mentioned in Article 20; provided, however, that in case of cancellation of authorization, permission and registration of the financial institution under subparagraph 1 of Article 17 paragraph (1) and recommendation of 'suspension of business execution' against an officer under subparagraph 1 of Article 18 paragraph (1) and 'dismissal from office' against employee under Article 19, fines cannot be imposed.

(2) The Governor may recommend the FSC to impose 'suspension of business execution' and 'dismissal from office' against officers who belong to a financial institution taken 'severe disciplinary warning against institution' in connection with violations and take measures like 'severe disciplinary warning and 'disciplinary warning' together.

§30. Concurrent Imposition in Prosecuting and Notifying the Board of Criminal Investigation

When the Governor prosecutes and notifies the board of criminal investigation in relation to violations of a financial institution or its officers, the other sanctions relating to such violations shall be as follows:

1. Sanctions prescribed under Articles 17 and 18 against a financial institution or its officers may be imposed concurrently.

2. Fines prescribed under Article 20 may not be imposed.

§31. Concurrent Imposition of Fines and Surcharges

(1) A fine against financial institution or its officers or employees can be imposed respectively in cases where they are imposed with fines concurrently in connection with the same violation of the relevant financial statutes; provided, however, that a fine can be imposed against a financial institution as follows:

1. Cases where violations were caused by the management of the financial institution or by directions of the CEO.

2. Cases where violations were caused by insufficient internal control or careless supervision.

(2) A sanction against a financial institution, its officers, or employees mentioned in Articles 17 through 19 can be cancelled in case where they are imposed with fine and surcharges for a the same violation or similar activities.

§32. Concurrent Imposition of Reimbursement

When the Governor imposes reimbursement against a financial institution's officers or employees pursuant to subparagraph 1 of Article 21 paragraph (1), he or she can concurrently impose a personal sanction.

Section 4.

Sanction Procedure

§33. Establishment of Deliberation Committee

(1) The Governor shall establish and operate a committee for deliberation on sanctions (hereinafter referred to as "deliberation committee") in order to deliberate matters relating to sanctions.

(2) The deliberation committee shall consider the following matters. When the Governor deems it necessary, however, the deliberation may be omitted.

1. Matters determined by the Governor pursuant to Articles 17 to 20; and

2. Matters concerning request for reconsideration of matters applicable pursuant to paragraph (1), except where procedures for objection, such as fines and civil money penalty, are provided separately under financial laws and regulations.

§34. Sanction Procedure

With respect to matters that were pointed out during an examination, a recommendation for sanction shall be made to the FSC through a review, adjustment, or deliberation committee's consideration or the Governor shall take the necessary measures.

§35. Procedure for Imposing Fines

(1) The Governor's recommendation for imposition of fines or punitive damages pursuant to Article 20 shall be made to the FSC in the order of review, adjustment and deliberation of the deliberation committee.

(2) For the imposition of a fine or punitive damages, the Governor shall allow person subject to the imposition a period of 10 days or longer to make a verbal or written statement of opinion. Absent a statement of opinion within the given period, person subject to the imposition shall be deemed to have no opinion.

§36. Procedure and Others for Objection

(1) When sanction is imposed upon a financial institution or its officers or employees, the Governor shall inform the imposed party of his or her right to express an objection through reconsideration, administrative hearings or filing of an administrative lawsuit, etc.

(2) If the Governor intends to recommend the FSC to revoke an authorization or registration pursuant to Article 17 paragraph (1) subparagraph 1, the Governor shall hold a hearing.

§37. Reconsideration

When a financial institution or its officers or employees subject to sanctions by the FSC or the Governor pursuant to this Regulation, considers the sanctions or disciplinary request as unlawful or unjust, a reconsideration request may be made to the FSC or the Governor.

§38. Report to the Board of Directors

When a financial institution or its officers or employees is subject to sanction pursuant to Articles 17 or 18, the CEO of that institution must proceed with necessary procedures - reporting to the board of directors or submission to a general meeting of shareholders - in compliance with the Governor's decision.

CHAPTER V.

INTERNAL CONTROL AND FINANCIAL INCIDENT REPORT

§39. Internal Control

In order to prevent financial incidents and improper business practices, a financial institution shall establish and operate an internal control system suitable to its situation and following subparagraphs shall be included in such internal control system:

1. Measures to strengthen self-supervision to prevent robbery and theft around a business site; and

2. Keeping and managing critical documents, such as bills, checks, deposit certificates and cash, important signet, credit document, etc.

§40. Self-examination

(1) A financial institution shall prepare and conduct self inspection on an annual basis for the purposes of preventing improper and unreasonable business activities and financial incidents. It shall also submit an annual or quarterly inspection plan to the Governor when required.

(2) A financial institution shall report opinion on the details and measures to the Governor immediately if illegal and improper acts have been discovered, which is imperative or important during self-inspection mentioned in Paragraph (1) above.

§41. Financial Incident

(1) In case an officer, employee or outsider of a financial institution causes a loss upon such financial institution or financial customers or disturbs financial order, the financial institution shall promptly report such to the Governor.

(2) A financial institution shall immediately find out the responsibility of an officer or employee related to financial incidents and take action, such as sanctions. A financial institution shall treat an officer or employee that delayed and covered up the financial incident report in the same way with respect to officers or employees related to financial incidents.

(3) A financial institution shall settle the accounts payable during the financial incident as accounts receivable and promptly take the following measures:

1. Indemnification by the person who had caused the financial incident, related persons and guarantors.

2. Civil Suit claiming compensation, if self-indemnification as set forth in subparagraph 1 above is impossible.

3. Disposition as loss pursuant to relevant regulations if the sum of money not be settled in accordance with subparagraphs 1 and 2 above.

(4) A financial institution shall not lend a person who had intentionally caused the financial incident in order to pay for the sum related to financial incident. However, financial institution shall make a loan in such person's name which loan period shall be within a year and shall not be extended.

(5) The Governor may determine the subject of the financial incident report and reporting period.

§42. Report of Important Information

A financial institution shall report to the Governor the following information:

1. In case a civil suit is decided unfavorably and the financial institution is involved in a civil action with a large claim.

2. Important incidents that are not relevant financial incident as described in Article 41 but determined to be reported to the Governor.

CHAPTER VI.

SUPPLEMENTARY PROVISIONS

§43. Prior Deliberation by SFC

The Governor shall, when a measure to be taken toward a company, institution, organization, or their officers or employees to which the Securities Exchange Act and Futures Trading Act applies falls under one of the following subparagraphs, refer to the FSC upon deliberation of the SFC:

1. Imposition of fines against the company, institution, organization, or their officers or employees to which the Securities Exchange Act and Futures Trading Act apply;

2. Disposition or orders prescribed in Article 95-2, subparagraphs 4 and 5 of the Futures Trading Act; and

3. Other matters deemed by the FSC where a deliberation by the SFC is necessary.

§44. Special Case of Sanction against Securities and Futures companies

(1) Notwithstanding Article 18 paragraph (1), subparagraph 1, the Governor may recommend the FSC to propose the dismissal of the officer who shall be examined by the Governor in accordance with the Securities Exchange Act, Futures Trading Act, Securities Investment Trust Act and Securities Investment Company Act when he or she is imposed with more than 3 times the sanctions over cautious-warning in connection with the following unlawful and improper conduct by its employees:

1. Conduct that violates the Securities Exchange Act Articles 42, 52.3, 107, 188.2 and 188.4

2. Conduct that violates the Futures Trading Act Article 22, Article 31, Article 48-1&2

3. Conduct that violates the Securities Investment Trust Act Article 34.2

4. Conduct that violates the Securities Investment Company Act Article 34-4

(2) A financial institution (with the exception of related institution and organization) is subject to examination by the Governor in accordance with laws stated above in Article 44 paragraph (1), shall take necessary actions and make public the contents of the sanction through the security market journal published by the Korea Securities Exchange when that institution is informed of the following matters:

1. Article 17 paragraph (1), subparagraphs 2 to 8

2. A sanction in consequence of an examination of a financial accident where a related sum of money is over a hundredth of financial institution's equity capital(5 hundred million when a hundredth of financial institution's equity capital is below 5 hundred million) or 5 billion Korean won.

§45. Special Case of Sanction Against Insurance Companies, Etc.

(1) Notwithstanding Article 17 paragraph (2), the Governor may, in accordance with the Insurance Business Act, revoke the registrations or suspend the operations, in all or part, of insurance agents, insurance brokers, actuaries, actuarial companies, claim adjuster and claim adjusting companies under the Insurance Business Act.

(2) The Governor may restrict a new establishment of an Insurance company's office and a new registration of solicitor, etc. at the same time when imposing sanctions prescribed in Article 17.

§46. Special Case of Sanction against Foreign Financial Institutions

When a domestic branch of a foreign financial institutions is imposed with sanctions prescribed under the Regulation Articles 17 paragraph (1), subparagraphs 2 to 7 and Article 18 paragraph (1) subparagraphs 2 and 3, the Governor shall give notice of facts of the unlawful and improper acts and contents of the sanction to the CEO and auditor of the concerned financial institution and the authorities of the branch's home country and may demand the replacement of the representative of the concerned branch.

§47. Special Case of Sanctions against Credit Unions, Etc.

(1) Notwithstanding Article 17-2, the Governor may suspend the operation of the credit union and its national association in accordance with the Credit Union Act, suspend the operation, in all or part.

(2) Notwithstanding the provisions of Article 18-2, the Governor may require dismissal, correction, or suspension of officers of mutual savings banks and their federation, and credit unions and their association pursuant to the Mutual Savings and Banking Act and the Credit Unions Act.

(3) Notwithstanding the provisions of Article 18-1, the Governor may separately determine sanction criteria for conducts in violation of the Mutual Savings and Banking Act and the Credit Unions Act in connection with loan business undertaken by officers of mutual savings banks and credit unions.

§47-1 Exceptions to Delegated and Consigned Examination

With the exclusion of the provisions of relevant statutes and this Regulation concerning the Governor's delegation or consignment of examination to a third party institution, the Governor shall determine methods and procedures of the examination conducted by the institution delegated or consigned.

§47-2. Exceptions to the Examination of Persons Subject to Conversion

Examination of the persons subject to conversion pursuant to §48-2 of the Banking Act and §51-2 of the Financial Holding Company Act shall include the following.

1. Verification of the performance of the conversion plan and its approval conditions under §16-3 of the Banking Act and §8-3 of the Financial Holding Company Act.

2. Changes in the financial conditions of, and financial transactions conducted by, the persons subject to conversion, among others. <Added March 6, 2003>

§47-3. Exceptions to the Examination of the Usury Business

(1) The amount prescribed by the FSC under §7 paragraph 2 of the Enforcement Decree of the Act Concerning Usury Business Registration and Consumer Protection means KRW 1 billion.

(2) The amount, examination fee and collection terms prescribed by the FSC under §10 paragraph 2 of the Enforcement Decree of the Act Concerning Usury Business Registration and Consumer Protection shall be in accordance with the Annex Table 4 "Imposition guideline of Examination Fee for Usury business."

(3) The Governor may determine the specific procedures needed for the imposition of the examination fee. <Added March 6, 2003>

§48. Detailed Matters

The Governor may determine the detailed matters necessary for implementing this Regulation.

Addenda

§1. Enforcement Date

This Regulation shall be effective from the official announcement date.

§2. Interim Measure

The measures taken pursuant to the Regulation on sanctions against financial institutions and the Regulation on examinations against financial institutions before the enforcement date of this Regulation shall be deemed as having been taken in accordance with this Regulation.

§3. Applications

(1) Article 20 shall not apply to the acts committed before June 30, 1999.

(2) When new sanction may be imposed or a sanction may become increased in consequence of the enforcement of this Regulation, this Regulation shall apply to the acts committed after the enforcement date of this Regulation.

§4. Relationship with Other Regulations

As of the enforcement date of this Regulation, when the Regulation on sanctions against financial institutions and the Regulation on examinations against financial institutions is quoted from other regulations, and when the corresponding provision is found in this Regulation, it shall be deemed that this Regulation or the corresponding provision has been cited.

§5. Regulations to be Repealed

As of the enforcement of this Regulation, the Regulation on sanctions against financial institutions and the Regulation on examinations against financial institutions shall be repealed.

Addendum

(February 28, 2001)

§1. Enforcement Date

This Regulation shall be effective from the official announcement date.

Addenda

(November 13, 2001)

§1. Enforcement Date

This Regulation shall be effective on the date of promulgation.

§2. Effective Period

The amended Article 16-1 shall be effective from January 1, 2002 to December 31, 2004.

Addendum

(May 15, 2002)

This Regulation shall be effective on the date of promulgation.

Addendum

(March 6, 2003)

This Regulation shall be effective on the date of promulgation.