Financial firms to adopt 'responsibilities map' to strengthen internal controls

Financial Services Commission (FSC) Chairman Kim Joo-hyun, right, speaks next to Financial Supervisory Service (FSS) Governor Lee Bok-hyun during a meeting in central Seoul, Thursday. Courtesy of FSC

Financial authorities to revise corporate governance law to reflect new principles

By Anna J. Park

Financial authorities have announced a set of new rules governing financial firms' internal controls, aiming to prevent recurring financial crimes or accidents that incur customer losses.

One of the most noteworthy changes is requiring financial firms to draw up a “responsibilities map,” which is a comprehensive document clearly describing management and governance, lines of responsibility and detailed identification of which executives are accountable for which functions. CEOs are required to write the responsibilities maps, which are confirmed at board meetings. Confirmed maps will be submitted to the financial authorities.

The U.K. has adopted a similar system, introduced by the Financial Conduct Authority (FCA). Financial authorities expect the responsibilities maps to clarify each executive's range of liabilities, aiming to engage firms' internal control management by effectively curbing misconduct and internal breaches.

In addition, the functions of financial firms' boards will also be more clearly defined. Under the new principles, the board of a company bears the duty of oversight with regard to internal control issues, while executives are required to take specific managerial actions. A subcommittee of internal control will also be required within a board.

Financial Services Commission (FSC) Chairman Kim Joo-hyun, fifth from left, and Financial Supervisory Service (FSS) Governor Lee Bok-hyun, fourth from left, stand next to heads of financial industry associations, including banking, investment, life insurance, non-life insurance and savings banks, during a meeting held in central Seoul, Thursday. Courtesy of FSC

“These new rules aim at inducing financial companies to draw up their own internal control systems that fit the unique and disparate characteristics and management conditions of each, instead of suggesting uniform internal control guidelines by authorities,” Financial Services Commission (FSC) Chairman Kim Joo-hyun said during a meeting with associations of various financial industries held in central Seoul, Thursday.

“By defining each executive's responsibilities regarding internal control matters precisely, the new rule is expected to enhance management's sense of duty.”

The head of the FSC stressed that the key to the new framework lies in the prevention of financial accidents, rather than punishing management. Those proven to have taken actions under the new rules, in due diligence and good faith, could be exempt from penalization in case of a financial accident.

Financial authorities plan to revise the Act on Corporate Governance of Financial Companies, after further industry consultation. Once the revision is passed, the law will take effect on every bank for one year after the revision. After 18 months it will be extended to large investment firms and insurance companies. Financial companies with capital assets smaller than a level stipulated by the law will be subject to the changes within five years from the effective date.