[Controversial Responsibility Structure Diagram] ① Securities Firms Voice Major Concerns Over Personnel Authority Infringement and Delays in New Business

With the implementation of the Responsibility Structure Chart for major securities firms starting this month, following its introduction to financial holding companies and banks, a sense of tension is spreading throughout the securities industry. The Responsibility Structure Chart is a document that details the allocation of responsibilities by position for executives at financial institutions, specifying the ultimate person in charge of each major business area. It was introduced to prevent the delegation of internal control responsibilities to others. Financial holding companies and banks began implementing the Responsibility Structure Chart in January of this year, and from this month, it has also been introduced at securities firms with assets of 5 trillion won or more, and asset management companies with assets under management of 20 trillion won or more. Although securities firms have prepared extensively for the introduction of the Responsibility Structure Chart, concerns remain about the confusion it may cause.

Securities firms are busy responding to the Responsibility Structure Chart. They are striving to align with the authorities, including reflecting points raised by the Financial Supervisory Service during the pilot operation period. According to disclosures from the Korea Financial Investment Association, KB Securities and Meritz Securities recently replaced their board chairs, previously held concurrently by the CEOs, with outside directors. At KB Securities, outside director Yang Jeongwon has taken over the board chair position from CEO Kim Sunghyun, and at Meritz Securities, the board chair has changed from CEO Jang Wonjae to outside director Lee Sangcheol. KB Asset Management also separated the roles of CEO and board chair, with outside director Jang Byunghwa replacing CEO Kim Youngsung as board chair.

KB Securities explained the reason for the change as "reflecting the main review results of the Financial Supervisory Service regarding the Responsibility Structure Chart." Meritz Securities also stated, "We changed and added responsibilities in accordance with the consulting opinions from the financial authorities and organizational restructuring that emerged during our participation in the pilot operation of the Responsibility Structure Chart."

Previously, in May, the Financial Supervisory Service pointed out that among 27 financial investment companies, 40% (11 companies) had CEOs concurrently serving as board chairs, raising concerns about potential conflicts of interest.

Despite efforts by securities firms to accept the authorities' recommendations and make improvements, there are significant concerns in the industry regarding the introduction of the Responsibility Structure Chart. Critics argue that it fails to reflect the more complex nature of the securities industry compared to banking, inevitably causing confusion. Additionally, concerns have been raised that it could infringe on personnel authority and hinder the promotion of new businesses through organizational restructuring.

A senior executive at Securities Firm A stated, "Personnel appointments are the exclusive authority of the CEO. Through personnel authority, the CEO controls the company and ensures its various functions operate properly. Sometimes, appointments are made not based on a candidate's major but to provide experience for nurturing next-generation leaders. However, the Responsibility Structure Chart requires inclusion of career details, and the authorities judge the appropriateness of appointments solely based on what is documented. Furthermore, whenever there is an organizational restructuring or a change in the organization's name, we must report it to the Financial Supervisory Service. Even if the company has selected the right person for a position, we must have the appointment re-examined by the Financial Supervisory Service to confirm their suitability. This effectively means that the supervisory authorities are deciding the organization and personnel of financial companies, resulting in significant restrictions on personnel authority."

There is also criticism that while the authorities conduct inspections, they do not assume responsibility. An executive at Securities Firm B lamented, "The supervisory agency avoids responsibility by requesting 'modifications or supplements' to the Responsibility Structure Chart instead of granting 'approval' or 'permission.' For securities firms, these modification and supplement requests are particularly burdensome, as we must keep making changes until we receive an approval signal."

The potential for hindering new business initiatives is also a concern. To pursue new businesses, organizational restructuring is often necessary, but the process of reporting every organizational and personnel change to the Financial Supervisory Service can cause inevitable delays. A senior executive at Securities Firm C pointed out, "When launching a new business, there are inevitably a wide range of additional and revised responsibilities, all of which must be reflected in the Responsibility Structure Chart and reported to the supervisory authorities. This can significantly delay the business process. For some businesses, timing is critical, and if there are delays at the stage of establishing the relevant organization, the business itself could be jeopardized."

However, the Financial Supervisory Service countered, "The claim that there are restrictions on personnel authority is not accurate. Since the law has changed to require active qualifications such as expertise, we are simply checking through post-reporting whether the legal requirements are met. Unless there are significant formal deficiencies, we do not intervene." Regarding requests for modifications or supplements, they added, "There are clear legal grounds for these requests. The authorities do not evaluate the substantive appropriateness of the content itself."

Both inside and outside the industry, there is a consensus that communication between supervisory authorities and financial companies is crucial for the successful establishment of the Responsibility Structure Chart. A senior executive at Securities Firm D emphasized, "There are significant differences in organizational structures depending on the company. Large firms, small and medium-sized firms, subsidiaries of holding companies, and independent firms all differ. Considering this, unless there is a very serious legal violation, issues arising from interpretational or practical differences should be discussed between the supervisory authorities and financial companies."

The situation is expected to be even more complicated for smaller firms where the Responsibility Structure Chart will be introduced in the future. Oh Taerok, a research fellow at the Korea Institute of Finance, pointed out, "Smaller firms often do not have standardized organizational structures or find it difficult to separate duties. For example, if there are fewer than 50 employees, it is difficult to expand the workforce, making some degree of dual roles unavoidable, and establishing internal control infrastructure can be challenging from a cost perspective. The introduction of the Responsibility Structure Chart for small institutions has been postponed compared to large institutions, but they should look to the experience of large institutions for ideas on how to overcome these challenges."

These concerns are also reflected in a survey conducted by Asia Economy among securities and asset management firms (with responses from 29 working-level staff at 28 companies). When asked about concerns regarding the introduction (multiple responses allowed), more than half of respondents cited: ▲concerns about it being merely a formality (58.6%), ▲increased workload (65.5%), and ▲difficulty responding to organizational changes (51.7%). Other concerns included infringement on corporate personnel authority (6.9%), shifting of responsibility (17.2%), and suppression of interdepartmental collaboration (3.4%).