South Korean outlines new measures to improve FI's internal controls

Financial companies must clearly designated internal control responsibilities of each exec.

The Financial Service Commission has proposed measures to improve South Korean financial companies’ internal control system.

In a meeting with the Financial Supervisory Service and the financial industry groups, FSC outlined proposed measures, with financial companies required to clearly designate internal control responsibility of each executive officer. 

The CEO of a financial company will need to prepare a responsibilities map showing how internal control responsibilities are shared and divided among executive officers. They will also be responsible for establishing a company-wide internal control system and supervising each executive officer’s internal control activities. 

Currently, CEOs of financial companies are only required to establish internal control standards. 

“The responsibilities map will specify the executive members who bear the ultimate responsibility for each work area, laying groundwork to prevent them from delegating internal control duties to subordinates,” South Korea’s FSC said in a statement.

Executive officers designated on the responsibilities map will be required to comply with the internal control management duty by regularly checking the appropriateness of internal control standards, whether their employees are complying with the standards and whether their internal control standards are operating properly. 

Exemption from sanction
For executive officers who “have been practicing due diligence regarding their internal control duties”, FSC said that a mitigation of responsibility or an exemption from sanction may be granted even if a financial accident takes place.

FSC said that this is protection against “unforeseeable or uncontrollable accidents.”

“In other words, the main purpose of the reform measures being rolled out is to induce executive officers to more faithfully carry out their internal control duties, instead of focusing on sanctions against them,” FSC said, adding that the responsibilities map framework already successfully operates in the UK and Singapore. 

FSC also expands the board’s oversight role over internal control matters to be made clearer as the board’s oversight duties have been specified under the Commercial Act. 

“With the board’s oversight role strengthened, it is expected that the principle of checks and balances in the governance structure of financial companies will be restored,” the FSC said.