Suspended Sentences Also Disqualify... Financial Services Commission to Strengthen Qualification Criteria for Financial Company Executives (Comprehensive)

Financial Services Commission Announces Legislative Notice on Related Amendments
Suspended Sentence Disqualification Period Extended by 3 Years
CEO Candidate Qualification Requirements Strengthened
No Obligation for Prior Approval Imposed

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[Asia Economy Reporter Kim Hyo-jin] The Financial Services Commission (FSC) is pushing 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 plan is to evaluate not only existing verification requirements such as criminal records but also qualifications like 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" containing these details 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 a financial company executive 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.

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 probation period, the sentence is waived. The amendment means that even if the court grants leniency, restrictions on qualifications as a financial company executive will still apply.

The amendment also extends the disqualification period for financial company executives who have received a suspended sentence with probation from "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 "5 years after the completion of the sentence" to "3 years after the completion of the sentence."

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 this amendment seeks to address.

Although the disqualification criteria for fines related to financial law violations have been somewhat relaxed, the overall level is seen as becoming stricter by the financial sector.

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 focus should be on the strengthened qualification restrictions during suspended sentences or probation."

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

This adds so-called "proactive" qualification requirements. The current law only stipulates that candidates "must not have a criminal or administrative sanction record, be a defaulter or bankrupt, be related to insolvent financial companies, or be mentally incapacitated."

The FSC referred to the "Fit and Proper" supervisory review systems applied by regulatory 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 assessments and in-depth interviews based on its responsibility to ensure that executives of significant financial institutions impacting the national economy possess sufficient qualifications.

The amendment does not impose a prior approval obligation for CEO appointments like this. An FSC official explained, "There is currently no active method to verify the qualifications of CEO candidates," adding, "The intent 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.