"Reducing Financial Accidents"... Financial Services Commission Launches TF to Improve Internal Control Systems in Financial Companies

Current Regulatory System Faces High Uncertainty and Low Effectiveness Issues
Financial Services Commission and Financial Supervisory Service Seek Solutions

[Asia Economy Reporter Sim Nayoung] The Financial Services Commission and the Financial Supervisory Service announced that they have launched a task force (TF) composed of experts from various fields to prepare improvement measures for internal control systems of financial companies and held the first meeting on the 12th. The current regulatory system governs the internal control of financial companies through external control. This has been criticized for increasing uncertainty in financial companies and having low effectiveness.

The Financial Services Commission reported that the first meeting discussed issues with the operation status of internal controls in the financial sector and cases of internal control operations in major foreign countries. Kim Yongjae, Standing Commissioner of the Financial Services Commission who presided over the meeting, said, "If the internal control system does not function properly, localized risk factors can quickly expand and transfer company-wide, damaging the soundness of financial companies and causing massive consumer harm." He added, "We ask each financial company to establish the necessary internal control systems and strive to create a complete institutional foundation that can operate them effectively."

The Act on the Governance of Financial Companies, enacted in 2016, imposes an obligation on financial companies to establish internal control standards and stipulates sanctions not only on the company but also on responsible executives in case of violations. The TF plans to focus on reviewing and discussing the current operation status of internal control systems in financial companies, desirable regulatory methods to realize the legislative intent, and ways to ensure effectiveness.

Regarding the optimal regulatory method, besides adopting an approach that maintains the current regulation-centered system while strengthening the minimum required standards, the TF will also consider switching to or combining a 'principle-based' regulatory method that minimizes specific enumerations. They will also discuss ways to clarify who is responsible and how to distinguish and judge responsibility in case of financial accidents to resolve uncertainties related to internal control.