The Financial Supervisory Service said on Monday it has prepared banking industry conflict-of-interest prevention guidelines with the Korea Federation of Banks and the banking sector to block improper transactions between employees and interested parties.

The move follows recent inspections of banks that uncovered multiple cases involving improper loans and lease contracts tied to current and former employees, family members and business counterparties.

The FSS said inspections confirmed cases in which a retired employee colluded with a spouse and an entering-class peer to receive or broker large improper loans over a long period, and a senior executive improperly supported a business counterparty of a retired employee in moving into a retail location.

The guidelines reflect international standards and specify the scope of interested parties and covered transactions. An "interested party" is defined broadly as a person with a private interest involving an employee, including major shareholders and related parties, current and former employees and their families, and others whom the employee judges could affect the fair performance of duties.

"Interested-party transactions" are defined as credit provision, acquisition of equity securities, lease, asset and service transactions, donations and other provision of tangible or intangible economic benefits. The guidelines also introduce step-by-step internal control procedures.

They also include violations of internal control standards as grounds for disciplinary action regardless of whether a loss occurs, and call for activating employee self-checks and internal reporting through whistleblower protection and reward systems.

The guidelines were enacted as self-regulation after a resolution by the Korea Federation of Banks. Each bank plans to prepare related internal rules and systems within the first half of the year and implement them from July.