Introduction of Financial Company Accountability Structure Pilot Operation Period... Sanction Guidelines Also Established

Incentives for Participants in the Pilot Operation

The financial authorities are introducing a pilot operation to ensure the early establishment of the 'Accountability Structure Diagram' for financial companies and will provide incentives to participating companies. They have also prepared related operational guidelines to enhance the predictability and transparency of sanctions.

On the 11th, the Financial Services Commission announced that it will conduct a pilot operation to ensure the early establishment of the Accountability Structure Diagram under the 'Act on the Governance of Financial Companies (Governance Act)' and has prepared the 'Operational Guidelines (Draft) on Sanctions Related to Violations of Internal Control Management Obligations.'

The authorities introduced the pilot operation period and prepared operational guidelines related to sanctions to facilitate the early establishment of the Accountability Structure Diagram. According to the amended Governance Act, after the initial submission of the Accountability Structure Diagram, CEOs and executives who violate internal control management obligations may be subject to status sanctions. For financial companies, concerns about sanctions and the burden of complying with the newly established system reduce the incentives for early adoption.

Accordingly, the authorities will conduct a pilot operation to encourage the early adoption and operation of the Accountability Structure Diagram. The initial targets are banks and financial holding companies whose statutory submission deadlines for the Accountability Structure Diagram come first, with plans to expand to other sectors later. Financial companies wishing to participate in the pilot operation must submit the Accountability Structure Diagram to the Financial Supervisory Service by October 31 after approval by their board of directors. The pilot operation period runs from the submission date until January 2 of next year.

Financial companies participating in the pilot operation will also receive incentives. During the pilot operation period, the Financial Supervisory Service will provide advice and consulting on the submitted Accountability Structure Diagrams. Furthermore, even if internal control management obligations are not perfectly fulfilled during the pilot operation period, no liability under the Governance Act will be imposed. Additionally, if violations of laws and regulations by affiliated executives and employees are self-detected and corrected during the pilot operation, sanctions will be mitigated or exempted.

The authorities have also prepared operational guidelines (draft) that set the main considerations and criteria for determining sanctions and mitigation in cases of violations of internal control management obligations. The key factors for considering illegal acts include the 'circumstances and extent of the illegal act' and the 'results of the illegal act.' Related detailed judgment criteria include ▲failure to fulfill management obligations ▲directives, tacit approval, encouragement, or neglect by executives ▲widespread, organized, or concentrated illegal acts ▲long-term or repeated illegal acts ▲raising issues about the possibility of illegal acts ▲large-scale customer damage ▲serious impairment of sound management ▲damage to the trust and order of the financial market.

Regarding the consideration of the actor's responsibility, judgment is based on whether the occurrence of the illegal act and its results were foreseeable and whether measures were taken to prevent it (avoidance of results). Foreseeability is judged based on the level of care generally required of executives, and avoidance of results is judged based on whether effective management measures were implemented in advance.

The authorities plan to finalize the operational guidelines (draft) after collecting various opinions from the industry and others by the end of August. The financial authorities stated, "Through the pilot operation, financial companies will be able to enhance their understanding and adaptability to the system by operating internal control management systems based on the Accountability Structure Diagram without the burden of sanctions. At the same time, by transparently presenting the draft operational guidelines on sanctions, the predictability of sanctions for financial companies will be improved, and the newly established system such as the Accountability Structure Diagram is expected to take root in the field." They added, "We will continue to communicate with the financial sector to support the stable establishment of the new system and ultimately strive to foster a responsible internal control culture in the financial sector."

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