[Interview] "Responsibility Map Should Not Become a 'Death Note'... Bold Reductions Needed for Executives Who Fulfill Their Duties"

How Experts Suggest Enhancing the Effectiveness of the Responsibility Map
Jung Sungkoo, Attorney at Sejong Law Firm

"If the system is operated solely with the intention that there must always be an executive responsible for every financial accident, the responsibility map will become a kind of 'death note.' For executives who have fulfilled their duties, bold reductions in sanctions should be recognized, but penalties against the company itself should be strengthened."

Jung Sungkoo, an attorney at the law firm Sejong and a leading expert in financial regulation, pointed out that for the responsibility map, which was implemented this year, to be successfully established, supervisory authorities should not regard the system merely as a tool for imposing sanctions.

In a recent interview with Asia Economy, Jung stated, "If the system is operated based solely on the logic that a specific individual must be held responsible for every single incident, the responsibility map will be operated in a distorted manner." He added, "Even in the early stages of implementation, when a financial accident occurs, sanctions should not be applied mechanically based on the scale of the incident. If there is evidence that an executive made every effort, this should be actively recognized as having exercised 'due care.' It is especially important to establish precedents for the application of Article 35-2, Paragraph 2 of the Act on Corporate Governance of Financial Companies." Paragraph 2 stipulates that when a financial accident occurs, if the executive in question has faithfully fulfilled their management duties, including internal control, the financial authorities may consider mitigating sanctions.

He also acknowledged that there is confusion and concern at the field level in the early stages of the system's introduction. Jung explained that through his own involvement in preparing responsibility maps, he has clearly realized that there are many practical difficulties in applying the system. Typical cases include situations where actual management and supervision are carried out by employees under the executive, making executive involvement difficult, and when there are multiple executives with the same responsibility, such as in a co-CEO system.

Jung particularly emphasized that, to enhance the effectiveness of the system, it is essential to review and reorganize whether each financial company has an internal control system suited to its own characteristics. He said, "I have doubts as to whether responsibility maps that are created by simply changing the company name on a standard template provided by associations are truly tailored to each company's circumstances. After operating the responsibility map for a certain period, companies should plan and reorganize their internal control structures to suit their own realities."

He also pointed out that it is important to distinguish the differences in the application of Article 35-2, Paragraph 1 and Paragraph 2 of the Act on Corporate Governance of Financial Companies, which set out the obligation to establish and comply with internal control standards. He said, "It is important to quickly identify cases where, although an accident occurred, internal controls were exemplary." Lastly, he stated, "The fundamental form of sanctions should shift from sanctions against individuals (including criminal sanctions) to sanctions against companies (such as fines and other administrative sanctions)," and assessed that bold reductions for executives who have fulfilled their duties will help the system take root. However, he also added that, for this to happen, the introduction of 'administrative sanctions with procedural legitimacy equivalent to judicial procedures' should come first.

He also pointed out that, unlike the UK, which introduced the responsibility map earlier and applies a principle-based regulatory approach, Korea applies a rule-based regulatory approach, so the process leading to executive accountability may inevitably be quite different. Jung said, "Although there are still no clear precedents in Korea, when an incident occurs, identifying the responsible person according to the responsibility map and determining whether they have properly fulfilled their duties is likely to become a key issue." He added, "Because of this, there is even a joke among legal practitioners that the only way for a CEO to avoid responsibility under the responsibility map is to hold internal control meetings every day." He explained that if only the fact of implementation is considered, rather than whether the responsibility map was properly constructed, such results are inevitable.

Jung identified the 'clear signal' from the financial authorities as the most important factor at this stage for the system to take root. He said, "Because this is the period when the system is being introduced, there is a great deal of psychological resistance. The supervisory authorities must send a clear signal to dispel the market's vague anxiety that the responsibility map is merely a tool for holding management accountable for outcomes." He also stressed that financial companies themselves must consider how to establish a management obligation fulfillment system that is actually feasible.