Responsibility Structure Chart Introduced, But Burden Rises and Financial Accidents Persist [Financial Innovation: Designing Growth] ④

Full-Scale Introduction of Responsibility Structure Charts in Banks, Yet Financial Accidents Persist
Financial Accident Disclosures in the First Half of This Year Triple Compared to Last Year
Focus on Prevention Rather Than Sanctions to Avoid a "Financial Serious Accident Punishment Act" Scenario
Various Measures Needed to Enhance the Effectiveness of the System

Editor's Note
Recently, financial reform has emerged as a major political agenda in the United States and Europe. The main points include adjusting regulations that were tightened after the 2008 global financial crisis, relaxing bank soundness regulations, and shifting the financial structure toward capital markets. These reforms stem from the awareness that the financial sector is not sufficiently fulfilling its role as a driving force for economic growth. In Korea, there is also a growing need to redesign financial policy. The key is to achieve a balanced redesign between capital and lending, consumer protection and innovation, control and autonomy, and discipline and growth. The next administration must pursue a 'balanced reform' that fosters autonomy and innovation, enabling finance to once again serve as a catalyst for economic growth by supporting strategic industries and innovative growth. In this context of rapidly changing domestic and international environments, Asia Economy examines the direction and challenges of financial regulation. This series focuses on shifting from 'reforms that eliminate regulation' to 'regulation that enables growth.' Beyond simple deregulation, we aim to present policy alternatives for designing a balanced financial ecosystem where autonomy and innovation coexist.

(Disclosure of Financial Accidents Over 1 Billion KRW)

Although responsibility structure charts were introduced in banks in the second half of last year to strengthen internal controls at financial companies, financial accidents have continued to occur. In fact, the number of reported financial accidents has increased compared to the past, raising urgent calls for ways to enhance the effectiveness of internal controls. Many in the field criticize that the responsibility structure chart merely imposes excessive responsibility on executives, without having a significant effect on actually preventing financial accidents. There is a growing consensus that, to improve effectiveness, the focus should not remain solely on sanctions as it is now, but rather the entire system should be redesigned to prioritize prevention.

Financial Accident Disclosures in the First Half of This Year Triple Compared to Last Year

As of May 19, the five major domestic banks (KB Kookmin, Shinhan, Hana, Nonghyup, and IBK) have disclosed a total of 15 financial accidents this year, a threefold increase compared to the 5 cases disclosed in the first half of last year. Hana Bank had the highest number with 5 cases, followed by KB Kookmin Bank with 4, and Shinhan, IBK, and Nonghyup with 2 cases each.

Most financial accidents involved fraud by external parties, but there were also cases of embezzlement by insiders, occupational breach of trust, improper loans, and bribery. The disclosed incidents occurred over a wide time span, from 2021 to early 2025.

The problem is that financial accidents have continued to occur even after the introduction of the responsibility structure chart in July last year. The responsibility structure chart is a document that details the allocation of responsibilities for each executive position within a financial company. It requires financial companies to clearly define in advance the scope and content of internal control duties for which each executive is responsible, taking into account the company's specific characteristics. The 'Act on Corporate Governance of Financial Companies,' aimed at strengthening internal controls in the financial sector, has been in effect since July last year, which is when the responsibility structure chart was introduced. If a major financial accident occurs, the responsible executives may face legal liability, which is why the law is sometimes referred to as the "Financial Serious Accident Punishment Act."

Banks have continued to experience financial accidents even after this law took effect in July last year. According to a disclosure by KB Kookmin Bank on May 9, an occupational breach of trust case involving 4.6 billion KRW occurred between February 29, 2024, and January 21, 2025. Some employees reportedly executed unauthorized loans using false real estate collateral. The company stated that it would take personnel action against the involved employees and file criminal charges. Industry insiders believe that, since this incident occurred even after KB Kookmin Bank submitted its responsibility structure chart to the Financial Supervisory Service (FSS), the relevant executives responsible for internal controls could also be subject to investigation. The FSS is currently conducting an inspection related to this case.

According to a disclosure by Hana Bank on April 23, some employees committed misconduct?including improper loans, private monetary transactions, and bribery?amounting to 7.4 billion KRW from October 2021 to December 2024. These employees are also expected to face criminal charges. The two cases of occupational breach of trust and fraud disclosed by IBK this year involved misconduct that continued from June 2022 to November 2024. All of these incidents occurred after the Act on Corporate Governance of Financial Companies came into effect.

As financial accidents have continued despite the introduction of the responsibility structure chart, banks have been strengthening internal monitoring and increasing whistleblower rewards to further enhance internal controls. Since January this year, KB Kookmin Bank has assigned customer relationship managers (RMs) dedicated to responsibility management to help prevent financial accidents. Shinhan Bank has raised its whistleblower reward for internal corruption from 500 million KRW to 2 billion KRW. Hana Bank has significantly increased the proportion of compliance staff. Woori Bank, which has not disclosed any financial accidents this year, is said to have benefited from a large-scale deployment of internal control experts who conducted extensive inspections.

An official from a commercial bank said, "Since the introduction of the responsibility structure chart, we have made significant independent efforts to prevent financial accidents," adding, "The recent increase in financial accident disclosures is partly due to strengthened internal monitoring, which has led to more cases being detected." Another official noted, "There are cases where financial accidents inevitably occur because fraudsters attempt scams with perfectly prepared documents."

Securities and Insurance Firms, Set to Introduce Responsibility Structure Charts, Also Express Concerns Over Effectiveness

Concerns about the effectiveness of the responsibility structure chart are also being raised in the financial investment and insurance sectors, where its introduction is scheduled for July. Structurally, the responsibility structure chart assigns internal control responsibility up to the CEO. However, in securities and insurance firms, unlike banks, actual control may be exercised by major shareholders rather than the CEO, making it unclear who should be held responsible.

There is also the possibility that major shareholders, despite exercising actual control, may step down as non-registered executives or appoint a separate CEO to whom responsibility is assigned under the responsibility structure chart. In fact, among small and mid-sized securities firms where major shareholders often serve as CEOs, there is a growing trend to shift to a professional management system ahead of the chart's introduction. Since securities and insurance firms experience financial accidents as frequently as banks, concerns may arise about the effectiveness of the system from the outset if it merely increases responsibility avoidance without actually reducing incidents.

Some point out that the responsibility structure chart could follow the same path as the Serious Accidents Punishment Act. The Serious Accidents Punishment Act, introduced in 2022 to prevent fatalities at construction sites and other workplaces, has led to an increase in those subject to punishment several years after its implementation, but the number of accidents has not decreased, prompting calls for the system to be revised.

Experts emphasize that, to enhance the effectiveness of the responsibility structure chart?which imposes excessive burdens?the focus should be on prevention rather than sanctions, and on ensuring the system is properly established. Oh Taerok, a research fellow at the Korea Institute of Finance, pointed out, "One reason internal control issues at financial institutions have persisted is the perception that the expected losses from financial accidents are smaller than the costs of prevention." He added, "For the responsibility structure chart to focus more on prevention than on sanctions, it is necessary to estimate the total internal control costs and, based on this, determine the appropriate level of internal control for each institution. For example, while supervisory authorities should apply uniform standards regarding the specificity of risk factor identification, they should also apply differentiated standards for the effectiveness of internal control management and implementation depending on the institution."

The FSS is also making efforts to ensure the stable adoption of the responsibility structure chart by providing consulting and feedback to banks, securities firms, and insurance companies where the system is being introduced. To address concerns about excessive sanctions, a Seriousness Pre-Review Committee will also be established. The committee will include FSS ombudsman members to enhance the fairness of sanctions. During the pilot operation period, incentives are being offered, such as not holding institutions accountable even if there are shortcomings in internal control management. An FSS official stated, "We will continue to provide guidance on issues and deficiencies identified through responsibility structure chart consulting via industry briefings and will continue to communicate with the financial sector to support the stable establishment of the new system."