The Financial Services Commission announced that a revision bill of the Act on Corporate Governance of Financial Companies was passed by the National Assembly on December 8. The revision requires financial companies to assign a responsibilities map for each executive officer in his or her line of work and revamps the ways in which executive members’ internal control management duties are examined.
Under the current legal framework, which came into force in 2016, financial companies are required to establish their own internal control standards, but this has often been treated as a perfunctory and procedural matter, without the effect of bringing about real change from the employees or management. In this regard, the revised law aims to resolve this problem by clearly designating internal control responsibilities of executive members to ensure that all financial company executives treat internal control matters as their own responsibilities.
First, the revision introduces a responsibilities map for all executive officers. This is not a uniform regulatory requirement imposed by the financial authorities. By having financial companies to set up and operate an internal control system on their own according to their own needs and circumstances and by having the responsibility of each executive officer clearly assigned, this measure aims to raise awareness and responsibility of executive officers about their internal control system.
More specifically, CEOs of financial companies will need to prepare a responsibilities map showing how internal control responsibilities are shared and divided among their company executives, without having any redundancy or a vacuum, for confirmation by the board and submission to the authorities. In this regard, financial companies will also be required to verify the professional capacity, accountability and trustworthiness of their executive members. Submission of the responsibilities map will begin six months after the law takes effect starting with banks and financial holding companies and large financial companies.
Second, company executives subject to the internal control management duty will need to regularly examine the appropriateness of their internal control standards and compliance from employees. As the top overseer of internal control, CEOs of financial companies will be responsible for establishing a company-wide internal control system and supervising each executive officer’s internal control activities.
Third, the board’s oversight role over internal control matters will also be made clearer and its internal control responsibilities made more specific. This will help to improve the function of checks and balance in corporate governance.
Lastly, executive officers who fail to comply with their internal control management duties will be subject to sanctions. For executive officers who have been practicing due diligence regarding their internal control and management duties, a mitigation of responsibility or an exemption from sanction may be granted even if a financial accident takes place, as a way to ensure protections against unforeseeable or uncontrollable accidents.
As this revision introduces a new internal control framework, the authorities will quickly prepare subordinate rules for announcement and work with the industry groups to prepare best practice guidelines demonstrating appropriate internal control activities to help to minimize initial setup costs for financial companies.
* Please refer to the attached file for details.