[2023 Financial Forum] Financial Services Commission: "Responsibility for Internal Control Cannot Be Delegated or Transferred"

'The 12th Seoul Asia Financial Forum' Held
'Desirable Financial Company Governance and Internal Control Systems'
Session Lecture by Lee Hyung-joo, Director of Financial Policy Bureau, Financial Services Commission

Lee Hyung-joo, Director of the Financial Policy Bureau at the Financial Services Commission, is giving a presentation on the topic of "Directions for Improving Corporate Governance and Internal Control Systems of Financial Companies" at the 12th Seoul Asia Financial Forum held on the 25th at the Chosun Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

"Authority related to internal control can be delegated, but the responsibility for inadequate internal control cannot be delegated or transferred," is the principle to be established. "In the event of a financial accident, senior executives and officers should be institutionalized to prove not that they 'did not know,' but that they made 'some preventive efforts.'

On the 25th, Lee Hyung-joo, Director of the Financial Policy Bureau at the Financial Services Commission, stated this during a session lecture titled "Improvement Directions for Financial Company Governance and Internal Control" at the 12th Seoul Asia Financial Forum held at the Westin Chosun Hotel in Sogong-dong, Seoul, under the theme "Desirable Financial Company Governance and Internal Control Systems."

The problem with the internal control regulatory system of financial companies pointed out by Director Lee lies in both the "will of management" and the "role of the board of directors." He said, "In the case of management, there is a tendency to focus on performance management rather than raising a sense of responsibility and to delegate responsibility to subordinates," adding, "It also appears to be treated merely as compliance or risk management tasks rather than an enterprise-wide system."

He pointed out that the board of directors has a limited role as a problem. Due to revisions and abolitions of internal control standards, the role is limited, and rather than actively controlling, it tends to focus only on passively approving agenda items.

To solve these problems, the financial authorities decided to introduce the "Responsibilities Map" method used in the UK and clarify the role of the board of directors. Director Lee said, "Like in the UK, financial companies will be required to designate persons responsible for each business area in advance to sufficiently manage and supervise," and "Whether sanctions are imposed will be determined based on whether sufficient preventive efforts were made when incidents occur."

Singapore, Hong Kong, and Australia have also introduced systems that strengthen individual responsibility rather than company responsibility in the event of accidents, similar to the UK. Director Lee said, "Internal control is a supervisory responsibility that senior management must necessarily fulfill."

He emphasized, "If management has made reasonable efforts for internal control when an incident occurs within a financial company, they will be exempted from liability," adding, "In this respect, the internal control system is not a burden on management but a system that protects management."

U.S. courts judge the appropriateness of internal control based on standards such as "whether preventive procedures were pre-regulated," "whether internal control standards are higher than the industry average," and "whether compliance training is being conducted" as criteria for exemption of supervisors. The industry expects that if this system is introduced, a culture where executives work confidently under their own responsibility will be established.

Director Lee said, "It is also necessary to clarify the role of the board of directors," and stated that the board should bear the ultimate supervisory responsibility for internal control and establish an internal control committee as a subcommittee within the board. He also mentioned the need to prepare a system that allows shareholders to hold the board accountable by enabling claims for damages under the Commercial Act.

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