[Inside Chodong] The Accountability Structure Chart Must Not Remain Merely a 'Tool for Identifying the Responsible'

"I am not sure whether this system was introduced to establish an internal control regime or simply to meet the needs of the supervisory authorities." This is what one practitioner anonymously shared in a recent survey on the 'Accountability Structure Chart' conducted among securities firms and asset management companies.

The accountability structure chart, implemented this year, is centered on distributing the scope of internal control responsibilities among executives, so that they can be held accountable for financial incidents. This aligns with the new administration's 'one-strike-out policy' that aims to take a firm stance against financial crimes such as embezzlement and breach of trust. As a result, even stricter enforcement is expected going forward.

Anyone working in the financial investment industry would agree with the intent of the system, which is to reduce recurring incidents and strengthen internal controls. However, it is difficult to dismiss the various concerns raised by field practitioners as mere 'resistance' commonly observed in the early stages of a new policy.

The problem lies in the specifics of the methodology. The Financial Supervisory Service previously stated at a briefing that "if an executive to be punished cannot be clearly identified when a financial incident occurs, it means the accountability structure chart is poorly designed." The agency also announced that it would simulate sanction cases from the past five years to check whether the responsible executive?i.e., the sanction target?can be specifically identified at each financial company.

This is precisely what is fueling the concerns of practitioners. There is a risk that the system could simply become a 'tool for pointing fingers at responsible parties.' Such a structure is highly dangerous. If a framework is established where executives are held responsible for all unforeseeable incidents solely based on outcomes, management will focus more on 'legal defense' and 'avoiding responsibility' rather than actually implementing internal controls.

Moreover, in the financial investment sector, work processes are highly interconnected, and multiple departments are often involved simultaneously in multi-layered verification and review procedures. Considering these characteristics, while clarifying accountability through the structure chart is ideal in theory, in practice it could lead to fragmented responsibility between departments and hinder collaboration. Ultimately, this could undermine the dynamism of entire securities firm organizations, which operate in a highly time-sensitive environment. On top of this, immediate concerns such as increased costs and manpower shortages could further drive companies toward merely 'formal' responses.

The fact that the accountability structure chart is being referred to as the 'financial sector's Serious Accidents Punishment Act' for various reasons should not be overlooked. What were the results of the Serious Accidents Punishment Act in the industrial sector? In a situation where it is impossible to control all risk factors 100%, executives burdened with excessive criminal liability shifted from accident prevention to passive and defensive management. Industrial accidents did not decrease after the law was enacted. Some have argued that there was an increase in accident concealment, delayed reporting, and formalistic responses. Contrary to the original intent, the focus shifted to preparing for exemption from liability, resulting in adverse effects. In this process, the burden was particularly heavy for small and medium-sized companies.

The financial authorities, having observed these precedents, are surely well aware that they must not follow the same path. True internal control operates on trust and responsibility, not on discipline and punishment. To enhance the effectiveness of the system, substantial exemption from liability and rewards must go hand in hand. In addition, the authorities must clearly convey the message that the accountability structure chart is not an 'all-powerful weapon,' but rather a compass to guide the industry in partnership with stakeholders.

It is very clear that strengthening internal controls is the direction our financial investment industry must pursue. In this context, the accountability structure chart has just taken its first steps. We hope that through prompt and responsive improvements that do not ignore voices from the field, the accountability structure chart can be established as a 'blueprint of trust' to enhance financial institutions' control, rather than simply a tool for identifying who is to blame.