In brief: banking regulatory framework in South Korea

Regulatory framework

What are the principal governmental and regulatory policies that govern the banking sector?

The principal authority is the Financial Services Commission (FSC). The Bank of Korea (BOK) has some authority in regard to monetary policy and payment or settlement-related matters. FSC decides financial regulatory policy and enforces it through its executory arm, the Financial Supervisory Service (FSS).

What are the defining characteristics of a bank to be caught by the banking laws and regulations? Is non-bank fintech regulated differently?

Under Korean law, a bank and non-bank institutions are clearly distinguished. A bank is specifically defined and regulated under certain statutes, such as the Bank Act, the Act on the Establishment and Operation of Internet-Only Banks (Internet Bank Act), and other laws governing statutory banks (eg, Korea Development Bank, Korea Export and Import Bank Act, Small and Medium Enterprise Bank Act, etc).

Do the rules vary depending on the size or complexity of the banking institution?

A bank can be classified as (1) a commercial bank, (2) internet bank and (3) statutory bank. A commercial bank is further classified as (1) a nationwide bank, (2) regional bank and (3) foreign bank branch.

Summarise the primary statutes and regulations that govern the banking industry.

The Bank Act and the regulations thereunder (eg, Enforcement Decree of the Bank Act, Banking Business Supervisory Regulation, etc).

Which regulatory authorities are primarily responsible for overseeing banks?

The principal authority is FSC. The BOK has some authority in regard to monetary policy and payment or settlement-related matters.

Describe the extent to which deposits are insured by the government. Describe the extent to which the government has taken an ownership interest in the banking sector and intends to maintain, increase or decrease that interest.

From 1 September 2025, the upper limit of deposit insurance is 100 million Korean won. This limit applies to each depositor’s total deposit accounts opened at a deposit institution. There is no upper limit on the ownership interest in a bank that can be held by the government. The government has 100 per cent ownership interest in the Korea Development Bank.

Which legal and regulatory limitations apply to transactions between a bank and its affiliates? What constitutes an ‘affiliate’ for this purpose? Briefly describe the range of permissible and prohibited activities for financial institutions and whether there have been any changes to how those activities are classified.

Banks are subject to restrictions on transactions with their major shareholders and especially related parties (article 35-2, 37). A major shareholder is defined as (1) a shareholder holding 10 per cent or more of equity interest in a bank together with its affiliate or (2) the largest shareholder or a shareholder having management power, holding 4 per cent or more of equity interest in a bank together with its affiliate. Limits are imposed on providing credit to the major shareholder (including its affiliate) or acquiring the equity interest (including its affiliate) in the major shareholder.

What are the principal regulatory challenges facing the banking industry?

The banking sector is contending with multifaceted regulatory challenges shaped by macroeconomic conditions, technological change and evolving supervisory approaches. The following represent the most pressing concerns:

• the FSC has tightened stress debt-to-service ratio requirements;
• lawmakers propose allowing companies with minimal equity to issue stablecoins, while the BOK insists issuance should be restricted to licensed banks under tight oversight to safeguard financial stability; and
• supervisory scrutiny has intensified across operational resilience, capital frameworks and digital finance.

Are banks subject to consumer protection rules?

Banks are subject to comprehensive consumer protection laws and regulations embodied in the Act on the Protection of Financial Consumers. Banks must establish internal control systems approved by their board and comply with the ‘Six Conduct Rules’: suitability, appropriateness, duty to explain, prohibition on unfair sales practices, prohibition of improper solicitation, and advertising restrictions.

The FSC is responsible for rulemaking and the FSS acts as the primary enforcement body. Practices under regulatory scrutiny are structured product mis-selling, loan fees and agent oversight.

In what ways do you anticipate the legal and regulatory policy changing over the next few years?

The government is trying to reorganise the financial regulatory authorities. It is expected that current primary regulators (ie, FSC and FSS) may be combined into a single financial regulator and a consumer protection function will be separated to form an independent organisation, but this plan has not been finalised.

Korean regulators are expected to advance digital asset frameworks, particularly by legislating for won-based stablecoins. Initially, issuance is likely to be restricted to licensed banks under close oversight to mitigate capital flight risks and preserve monetary policy effectiveness. Regulatory emphasis on cybersecurity, AI governance, and third-party risk is expected to intensify as banks deepen fintech partnerships.