2024.06.11. The Fair Economy — An amendment to the Enforcement Decree of the Act on Corporate Governance of Financial Companies (Governance Structure Act), aimed at setting out matters delegated to presidential decree under the law, passed the Gukmu Hoeui (State Council) on the 11th.
The amended enforcement decree specifies details delegated to the decree under the law, including the specific content of responsibilities to be included in the responsibilities map, the deadlines for submitting the map by financial sector, and the specific details of management duties — including internal controls — for executives and CEOs.
It also added newly enacted financial laws and regulations, such as the Act on the Management of Personal Financial Claims and Protection of Personal Financial Debtors, to the list of financial-related laws under Article 5 of the Corporate Governance Law implementing decree.
The amended enforcement decree will be promulgated this month and is set to take effect on July 3, the date the law itself goes into force. In addition, an amendment to the Supervisory Regulation on Governance Structure, which sets out matters delegated to subordinate regulations under the Governance Structure Act and its enforcement decree, is also planned to be submitted to and passed by the Financial Services Commission by the end of this month.
The Financial Services Commission and the Financial Supervisory Service stated, "With the implementation of the revised Corporate Governance Law, financial company executives will be assigned responsibilities and granted management duties such as internal control over their areas of responsibility. We expect this to significantly change executives' awareness of internal control and lead to a fundamental shift in internal control practices across the financial sector."
They also said, "We plan to continue communicating with the financial sector and making other efforts to ensure that the responsibilities map and related systems take hold smoothly as effective tools for strengthening internal controls in the financial industry."
Specific Responsibilities to Be Included in Responsibilities Map Defined
Responsibilities to be included in the responsibilities map refer to the responsibility for executing and operating internal controls over matters that financial companies or their executives and employees must comply with under financial-related laws. These are divided into: responsibilities related to tasks assigned to a designated person in charge; responsibilities related to business for which the financial company has obtained authorization or a license; and responsibilities related to management activities carried out to conduct such authorized or licensed business.
Among financial company executives eligible to be allocated responsibilities under the responsibilities map, outside directors who do not serve as chairman of the board are excluded, while compliance officers and risk management officers who are not executives can be included. In addition, the amendment to the Supervisory Regulation on Corporate Governance of Financial Companies allows responsibilities to be allocated to "employees who perform duties equivalent to those of an executive," so that financial companies can appropriately allocate responsibilities according to their individual organizational and business characteristics. Under the law, CEOs and other representatives of financial companies must allocate responsibilities so that there is no omission or overlap, and the enforcement decree requires that the responsibilities map be drawn up so that responsibilities are not concentrated on any particular executive when allocated.
Deadlines for Submitting Responsibilities Map Set by Financial Sector
Regarding the submission deadlines for responsibility structure maps by financial sector, as delegated by the law, the decree sets differentiated timelines for preparation and submission based on the characteristics and scale of financial companies to consider their burden.
Excluding banks, financial holding companies, financial investment firms (with assets of 5 trillion won [about $3.6 billion] or more, etc.) and insurers (with assets of 5 trillion won or more) — for which the law already sets the submission deadline — financial investment firms (with assets under 5 trillion won, etc.), insurers (with assets under 5 trillion won), specialized credit finance companies (with assets of 5 trillion won or more) and mutual savings banks (with assets of 700 billion won [about $500 million] or more) must submit the responsibilities map within two years of July 3, the date the law takes effect. All other financial companies must submit it within three years of the law's effective date.
Executives' management duties regarding internal controls under the amended law apply from the time the responsibilities map is first prepared and submitted to financial authorities, while the active verification, disclosure and reporting of executives' qualifications apply from cases such as when an executive is appointed after the responsibilities map has first been prepared and submitted to financial authorities.
Details of Executives' Internal Control Management Duties Included
Financial company executives assigned responsibilities must take internal control management measures, such as "checking compliance with laws and internal control standards by employees," regarding their areas of responsibility as required by law. The revised decree specifies additional internal control management measures, including "support for employee education and training to comply with laws and internal control standards" and "requests for investigation and sanction measures against employees who have committed violations."
CEOs and other senior officials of financial companies must take overall internal control management measures as required by law, such as "checking the performance of executives' internal control management duties," "inspecting potential risk factors or vulnerable areas that could lead to employee violations of laws," and "taking measures to prevent long-term or repeated violations of laws by employees."
The revised decree specifies potential risk factors or vulnerable areas that CEOs must inspect, such as "matters related to internal control reported by multiple executives that are identical or similar." It also specifies measures CEOs must take to prevent long-term or repeated violations by employees, such as "checking the possibility of similar violation cases when a violation of laws or internal control standards occurs."
Guidelines Prepared to Help New System Take Root
The Financial Services Commission has been continuously communicating with the Financial Supervisory Service, financial industry associations and the financial sector, gathering a range of opinions to help new systems such as the responsibilities map take root smoothly in the financial industry. It is also working to prepare guidelines containing answers to questions raised by the financial sector during the discussion process.
The guidelines are expected to include answers to various inquiries (issues) related to the execution and operation of the revised Corporate Governance Law, such as "explanations and allocation methods for responsibilities" and "detailed content of the CEO's overall internal control management duty."
Considering concerns in the financial sector about the possibility of strengthened sanctions due to the introduction of internal control management duties, the Financial Services Commission is also working with the Financial Supervisory Service to prepare an "Operational Directive on Sanction and Exemption Standards Related to Internal Control Responsibility" to enhance the predictability and transparency of internal control sanctions. This directive is expected to include standards for initiating investigations into internal control responsibility and criteria for judging whether due care was exercised when imposing sanctions.
The guidelines and operational directives are planned to be released after being finalized through additional opinion gathering from the financial sector and reporting to the Financial Services Commission.
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