Prompt Corrective Action

Prompt Corrective Action (PCA, 적기시정조치/適期是正措置) is one of the powerful regulatory measures toward financial institutions in Korea after the IMF Crisis.

The prompt corrective action system aims to strengthen the safety of the financial system by executing proper management improvement measures on troubled financial institutions, thereby normalizing their management or inducing liquidation of those having no likelihood of normalization.

Key words
prompt corrective action, financial supervision, capital adequacy

Statutory ground
The prompt corrective action system is currently operated in accordance with the Act on the Structural Improvement of the Financial Industry, (금융산업의 구조개선에 관한 법률) and is binding on most financial institutions including commercial banks, financial investment business entities, insurance companies and mutual savings banks.

Enforcement
FSC recommends, demands or orders financial institutions to improve their management or submit relevant implementation plans if their financial conditions do not meet set standards (for example, if their BIS ratios do not meet certain levels), or if it is judged obvious that their financial conditions do not meet adequate standards due to major financial incidents or huge non-performing loans. Even if they do not meet such adequate standards, however, if it is judged that they can meet them within a short period of time or if other equivalent reasons are recognized, such action may be delayed for a fixed period.

For example, if a bank’s BIS capital ratio falls short of the minimum capital requirement of 8 percent, or its management condition assessment result is grade 4 or lower, a prompt corrective action of recommending, demanding or ordering management improvement is imposed on the bank in line with the degree of the problem’s severity. A bank to which improvement in management has been recommended or demanded must submit a plan for man agement improvement reflecting the actions demanded of it to FSS within two months of the date of issuance of such recommendation or demand, and obtain FSC’s approval of this plan.

A bank whose management improvement plan has been approved must submit quarterly reports on its performance in plan implementation by the 10th day of the next month following the end of each quarter, to the Governor of FSS, and if the Governor judges its implementation performance to be insufficient or that implementation is impossible due to changed conditions, such as in the relevant systems, the Governor may take necessary measures such as demanding modification of the management improvement plan or pushing implementation of the plan within a certain time period.

Requirements for Invoking Prompt Corrective Actions to Financial Institutions

 * (as of end-June 2011)

Source: Financial Supervisory Service