[Inside Chodong] Introduction of Accountability Charts in Securities Firms and Responsible Management

Recording Responsibilities by Executive Position
Blocking the Shifting of Blame in Financial Accidents
A Chance to Strengthen Internal Controls for CEOs and Others

Securities firms are actively preparing accountability charts. Recently, securities companies have been competing to disclose their preparation status for accountability charts and have expressed their intention to introduce them ahead of the scheduled date.

An accountability chart records the allocation of responsibilities by position held by executives in financial companies, specifying the final person responsible for major tasks within the financial institution. It was introduced to prevent the delegation of internal control responsibilities to others. The amendment to the Financial Company Governance Act, passed by the National Assembly last December, includes improvements to the internal control system in the financial sector, such as the introduction of accountability charts and the imposition of internal control management obligations. Last month, financial authorities conducted a legislative notice and regulatory change notice for enforcement ordinances and supervisory regulations to specify delegated matters following the amendment of the "Act on the Governance of Financial Companies (Governance Act)." The enforcement ordinances and supervisory regulations stipulate detailed matters delegated by law, including how to prepare and submit accountability charts, submission timing by financial sector, and the overall management obligations and specific contents of internal control by CEOs and others. Once the amendment takes effect in July, financial holding companies and banks must submit accountability charts within six months; securities firms with assets over 5 trillion KRW and large asset management companies with assets under management over 20 trillion KRW must submit by July next year; other companies must submit by July 2026.

Accordingly, financial holding companies and banks have taken the lead in preparing accountability charts, and securities firms affiliated with financial holding companies have also begun preparations to proactively draft accountability charts.

Countries like the UK and Singapore, which introduced accountability charts earlier, are evaluated to have improved management culture and established sound consumer protection systems through the introduction of accountability charts. Representatives from the Korea Financial Investment Association and 15 securities firms visited the UK last month to benchmark, as the UK was the first to introduce accountability charts.

The introduction of accountability charts aims to fundamentally block the practice of shifting responsibility when major financial accidents such as incomplete sales and embezzlement occur. There have been continuous criticisms that the grounds for sanctioning CEOs are unclear even when major financial accidents occur. Even when large embezzlement incidents involving hundreds of billions of KRW occur in financial companies or investors suffer huge damages due to poor fund sales, the lack of clear grounds for sanctions often allows CEOs to evade proper responsibility, leading to strong demands for stringent sanction measures.

Through accountability charts, responsibility will become clear, and there will be grounds to hold CEOs accountable for failing to properly manage their organizations. It is positive that financial companies are actively preparing to introduce accountability charts ahead of the regulatory schedule. However, it is bittersweet that this is a fundamental issue that should have been addressed earlier, but responsibility has been avoided through shifting blame or scapegoating until now.

The true purpose of accountability charts is not to punish someone but to organize the internal control system and prevent financial accidents by strengthening the sense of responsibility among financial company members. While preparing accountability charts, financial companies must spare no effort to establish systems to prevent financial accidents. Additionally, since there are concerns that financial accidents are systemic problems and cannot be fundamentally resolved by focusing solely on personnel sanctions, financial authorities must supplement the system to ensure that the introduction of accountability charts leads to the expected effects and that concerns do not materialize.