Even Bank Presidents Tremble... Financial Sector's Serious Accident Act Enforced from This Year [Accountability Structure Dilemma]①

Financial Industry's Serious Accident Punishment Act: Full-Scale Implementation of the 'Responsibilities Map' This Year
Anxiety Grows Among Senior Financial Executives After Responsibilities Map Introduction
"Excessive Regulation May Undermine Effectiveness vs. Increased Potential to Prevent Financial Accidents"

Editor's NoteSince this year, the introduction of the 'Responsibilities Map' in the financial sector has heightened tension within the industry. The Responsibilities Map is a system where each executive of a financial company clearly defines the scope and content of their internal control responsibilities. The government established this system as a preventive measure in response to recurring financial accidents, but on the ground, there are concerns about increased accountability and disciplinary risks. There is also a significant fear that a single small mistake could lead to losing one's position. This special report examines the background and current status of the Responsibilities Map introduction and explores ways to make the system more efficient and rationally established.

#Senior executive A at a major commercial bank has been receiving daily reports on various issues, big and small, from branches nationwide since the beginning of this year. With the introduction of the Responsibilities Map, even minor calculation errors involving amounts as small as 1,000 won at small branches far from Seoul could result in personal accountability, doubling the number of matters requiring attention.

#Senior government official B has recently been hearing many complaints related to the Responsibilities Map whenever meeting with financial company CEOs. Most grievances revolve around increased workloads due to the Responsibilities Map introduction and heightened anxiety about potential lawsuits and dismissal from the company. The official has also been hearing about the difficulties faced by C-level executives such as CEOs, Chief Risk Officers (CROs), and Chief Financial Officers (CFOs).

With the full-scale introduction of the Responsibilities Map in the financial sector this year, industry anxiety surrounding the system is growing. There are concerns that adding another regulation to an already heavily regulated financial industry will reduce the system's effectiveness while increasing management burdens. On the other hand, some voices suggest that the Responsibilities Map will help prevent major financial accidents and, in the long term, strengthen the core competitiveness of financial companies.

Executives of financial companies contemplating the accountability structure diagram. AI image.

Financial Companies' Top Goal This Year: "Strengthening Internal Controls"

Analysis of this year's management strategies in the financial industry reveals that the top priority for financial company CEOs is strengthening internal controls. This is because the Responsibilities Map is being actively introduced across the financial sector, starting with financial holding companies and banks this year, leading to stricter standards for internal controls. The Responsibilities Map is a document detailing the allocation of responsibilities by position for each executive in a financial company. Each executive clearly defines the scope and content of internal control tasks they are responsible for, considering the company's characteristics in advance. The introduction of the Responsibilities Map began following the enactment of the 'Act on the Governance of Financial Companies' last year, aimed at strengthening internal controls in the financial sector. Since executives may bear legal responsibility if a major financial accident occurs, the system is sometimes referred to as the financial industry's Serious Accident Punishment Act.

With the introduction of the Responsibilities Map, chairpersons of major financial holding companies have repeatedly urged their employees to strengthen internal controls this year. Jin Ok-dong, Chairman of Shinhan Financial Group, emphasized at the shareholders' meeting held on the 26th of last month, "We will improve the overall management supervision and monitoring system to ensure that the internal control system at Shinhan operates more effectively." Chairman Jin mentioned internal control strengthening again at the shareholders' meeting after ordering it in his New Year's address earlier this year. On the same day, Lim Jong-ryong, Chairman of Woori Financial Group, pledged at the shareholders' meeting, "We will innovate the entire system, including improving internal control-related systems, so that internal controls are efficiently integrated and smoothly operate in all sales and business processes," adding, "We will definitely become a trusted Woori Financial Group." Yang Jong-hee, Chairman of KB Financial Group, Ham Young-joo, Chairman of Hana Financial Group, and Lee Chan-woo, Chairman of NH Nonghyup Financial Group, also set strengthening internal controls as a key management goal for this year.

Despite the strong commitment from financial holding company leaders to strengthen internal controls, anxiety and dissatisfaction among financial company employees responsible for internal control tasks remain high. Common complaints include increased workload, the burden of disciplinary actions, and concerns about the policy's effectiveness.

Executive C at a commercial bank said, "Since preparing for the introduction of the Responsibilities Map last year, internal control-related tasks have more than doubled," adding, "There is a real fear about how much responsibility I must bear if problems such as improper loans or embezzlement occur despite doing my best in internal controls." C also noted, "While large financial companies have sufficient personnel and funds, small and medium-sized financial companies lack resources, making it practically difficult to strengthen internal control systems."

There is also debate about how effective strengthening accountability will be in actually preventing financial accidents. In reality, the Responsibilities Map may be created only as a 'document for audits,' without actual responsibility distinctions or improvements being made. Since actual work is often integrative and fluid, there are concerns about whether responsibilities can be clearly divided by a simple Responsibilities Map. Cases may arise where individuals evade responsibility by claiming "there is no role for me in the Responsibilities Map."

Oh Tae-rok, a research fellow at the Korea Institute of Finance, said, "For the Responsibilities Map to be effective, both financial companies and authorities must continue rich discussions at the practical level," emphasizing, "Especially, the CEO must raise awareness of the importance of internal controls throughout the organization, recognize risk factors in detail, and proceed to allocate necessary practical resources for the introduction to be effective."

"Initial Confusion Expected, but Will Prevent Financial Accidents in the Long Term"

As the system is in its early stages, there may be various confusions on the ground for some time, but there is great expectation that it will help prevent major financial accidents and protect consumers in the long term. The introduction of the Responsibilities Map is expected to clarify accountability and naturally strengthen internal control systems. In particular, increased interest and participation from CEOs and management are anticipated to effectively reduce risks such as high-risk financial product sales and incomplete sales.

The government expects that the introduction of the Responsibilities Map will clearly define internal control responsibilities for financial company executives and make all executives recognize internal controls as part of their duties, leading to fundamental changes in internal control behaviors in the financial sector. Through this, it is expected that the core competitiveness of financial companies will be strengthened in all areas, including consumer protection and financial soundness management.

Research fellow Oh explained, "The introduction of the Responsibilities Map has strengthened the CEO's responsibility for internal controls and implemented the principle that final responsibility for each major task cannot be delegated downward, thereby clarifying accountability for financial accidents and enabling direct accountability of management for failures in fulfilling management duties, making it difficult for executives to evade responsibility."

There is also the point that executives who properly fulfill internal control management duties can avoid sanctions or disciplinary actions. A financial regulatory official explained, "Even if a financial accident occurs, if internal control and other management duties have been fulfilled, sanctions for violations of internal control and management duties will not be imposed," adding, "Because the Responsibilities Map clearly defines one's responsibilities, those who have performed their duties well may actually avoid harm, which is also an advantage."