Suspended Sentences Also Lead to Disqualification... Raising Qualification Standards for Financial Company Executives

Financial Services Commission Announces Legislative Notice on Related Amendments
Suspended Sentence Disqualification Period Extended by 3 Years
CEO Candidate Qualification Requirements Also Strengthened

[Asia Economy Reporter Kim Hyo-jin] The Financial Services Commission (FSC) is planning to strengthen the disqualification criteria for financial company executives based on criminal penalties. Additionally, when appointing a financial company's Chief Executive Officer (CEO), the FSC intends to evaluate not only existing verification requirements such as criminal records but also qualifications including expertise and morality.

According to financial authorities on the 3rd, the FSC recently announced a legislative proposal for partial amendments to the "Act on the Governance of Financial Companies" and is currently collecting public opinions. The FSC had attempted a similar amendment in 2018, but it was unsuccessful. Based on the feedback received, the FSC plans to submit the amendment bill to the National Assembly soon.

The amendment includes provisions that disqualify financial company executives from holding office until the probation period ends if they have received a suspended sentence of imprisonment or higher. Currently, there are no disqualification regulations regarding suspended sentences under the law.

A suspended sentence is a leniency measure where sentencing is deferred for a certain period if the crime is deemed minor, and if no incidents occur during the suspension period, the sentence is waived. The amendment means that even if the court grants leniency, the qualification restrictions for financial company executives will still apply.

The amendment also extends the disqualification period for executives who have received a suspended sentence with probation for imprisonment or higher from the current "until the end of the probation period" to "up to 3 years after the probation period ends." Conversely, for those fined for violating financial laws, the disqualification period will be reduced from the current "5 years after the completion of sentence execution" to "3 years after the completion of sentence execution."

This aims to improve fairness between the two cases. The FSC explains that although probation is a relatively heavier punishment, depending on the length of the period, there was a loophole where the disqualification period could be shorter than that for those fined for violating financial laws, which the amendment seeks to address.

Although the disqualification criteria for fines related to financial law violations have been somewhat relaxed, the overall level of restrictions is expected to increase, according to the financial sector's perspective.

A senior official from a financial company said, "Even looking at relatively recent cases, many issues arose from violations of laws other than financial-related laws," adding, "The emphasis should be placed on the strengthened qualification restrictions during suspended and probationary sentences."

Alongside this, the FSC included in the amendment a provision requiring financial companies to review whether CEO candidates possess "financial expertise, fairness, morality, dedication to duties, and other qualities suitable for managing a financial company" when appointing CEOs.

This is an addition of so-called "proactive" qualification requirements. The current law only stipulates that candidates "must not have a history of crimes or administrative sanctions, be insolvent or bankrupt, be related to insolvent financial companies, or have mental or physical disabilities."

The FSC referred to the "Fit and Proper" assessment system used by supervisory authorities in the United States, the United Kingdom, and the European Union (EU) when appointing key executives of financial companies.

For example, the European Central Bank (ECB) verifies candidates' experience, reputation, potential conflicts of interest, and dedication to duties through preliminary evaluations and in-depth interviews based on its responsibility to ensure that executives of significant financial institutions affecting the national economy possess adequate qualifications.

The amendment does not impose a prior approval obligation for CEO appointments. An FSC official explained, "There is currently no active method to verify the qualifications of CEO candidates," adding, "The purpose is to impose a declarative obligation for financial companies to autonomously but more proactively review whether candidates possess suitable qualifications."

This content was produced with the assistance of AI translation services.