[News Terms] Holding Executives Accountable for Financial Incidents, the 'Accountability Structure Diagram'

The ‘Responsibility Structure Chart,’ which will be applied to banks starting December next year, is a system designed to clearly distinguish the internal control responsibilities of each executive in advance and to ensure that each executive actively fulfills their internal control duties, such as preventing financial accidents. It will be introduced next year based on the ‘Partial Amendment to the Act on the Governance of Financial Companies (Governance Act),’ which passed the National Assembly plenary session on the 8th.

The core of the Responsibility Structure Chart lies in identifying the final person responsible for major tasks. Accordingly, even if an executive delegates their authority, the responsibility is not delegated. Executives under the Governance Act, such as the CEO (Chief Executive Officer), CRO (Chief Risk Officer), and CCO (Chief Customer Officer), are subject to this. However, outside directors, except for the chairman of the board, are excluded from the scope of application considering their limited access to information.

Executives listed in the Responsibility Structure Chart must fulfill internal control management duties by continuously monitoring the appropriateness of internal control standards, compliance of employees with these standards, and whether the standards are functioning properly within their scope of responsibility. In particular, the CEO, who is the overall person responsible for internal control, must establish an enterprise-wide internal control system and comprehensively supervise and manage the control activities of each executive.

If an executive has diligently fulfilled their internal control duties with considerable care in daily operations according to the Responsibility Structure Chart, their responsibility may be reduced or exempted in the event of a financial accident. The financial authorities explain that this is to protect the conviction, judgment, and efforts of the responsible executives from unforeseen financial accidents that are difficult to predict and control in advance. This approach is similar to regulatory methods introduced earlier in countries such as the United Kingdom and Singapore.

The Responsibility Structure Chart must be prepared by the CEO of the financial company without overlap, gaps, or omissions in responsibilities, and the prepared chart must be submitted to the financial authorities after deliberation and resolution by the board of directors. With the introduction of the Responsibility Structure Chart clarifying the responsibilities of the relevant executives, financial companies will also bear the obligation to verify whether the executives possess the expertise, integrity, and reliability necessary to perform those responsibilities.

The submission of the Responsibility Structure Chart will begin with banks and holding companies starting December, six months after the law takes effect in June next year, and will be implemented sequentially according to financial sectors and company sizes. The application date for financial investment companies (with total assets of 5 trillion KRW or more and managed assets of 20 trillion KRW or more), comprehensive financial companies, and insurance companies (with total assets of 5 trillion KRW or more) is June 2025. Smaller financial investment companies, insurance companies, specialized credit finance companies, and savings banks will be subject to the regulation within five years after the law takes effect (June next year).