[Interview] "Accountability Structure Chart Lacks Guidelines... Supplementation of Concrete Standards Needed"

Expert Insights on Enhancing the Effectiveness of the Accountability Structure Chart
Interview with Park Hyunchul, Partner at PwC Consulting

"There is a lack of concrete guidelines regarding disciplinary actions and sanctions. Supplementation is necessary."

Park Hyunchul, Partner at PwC Consulting and Head of the Financial Crime Prevention Center as well as the Risk & Compliance Services division, suggested that in order for the accountability structure chart to be effectively implemented, the financial authorities need to provide clear guidelines on disciplinary actions and mitigation measures.

In a recent interview with Asia Economic Daily, Park stated, "The accountability structure chart lacks specificity, so it is unclear in which cases sanctions will be imposed, as well as the degree of effort, inspection, and documentation required from executives fulfilling their management duties."

Having handled numerous consulting projects in this field, he added, "The industry is most curious about the 'first case of the accountability structure chart.' Although there is some distinction regarding the circumstances and severity of violations and their outcomes, the lack of specificity means there is uncertainty about which cases will actually be sanctioned."

He continued, "In a similar vein, there are many questions in the industry about 'exemption or mitigation of sanctions considering substantial diligence,' specifically regarding 'what kind of effort' and 'to what extent' is required. There are also concerns regarding the responsibilities of the board chair and the CEO's overall management obligations." He explained that, due to the lack of clear guidance from the financial authorities, there is significant confusion in practice.

Park also predicted that the multilayered structure of securities firms would hinder the establishment of the accountability structure chart. The financial authorities have set forth the principle that accountability should be assigned only to the highest-ranking executives, namely vice presidents. However, in most securities firms, there are multiple layers of executives below the division head. Since the "highest-ranking executive" as defined by the authorities is different from the "practical executive" handling actual tasks, concerns about confusion and effectiveness due to overlapping responsibilities are inevitable.

He also raised concerns that the heavy administrative burden placed on securities firms could ultimately result in a merely formal system. "To fulfill the duty of substantial diligence, firms are required to provide evidence through documents, emails, and electronic records, which could easily lead to mere formal documentation," he said. "The requirement to submit changes to responsibilities within seven business days after a board resolution also imposes a significant burden on financial institutions."

He further predicted that the pressure would be even greater for small and medium-sized securities firms. Park emphasized, "Unlike large securities firms, smaller firms, where performance and sales are relatively more important and the workforce is limited, continue to face challenges due to a lack of dedicated and specialized personnel to manage these requirements. While there are calls for efficiency or specialization through system utilization, this also entails additional costs."

For these reasons, Park explained that the financial authorities should show tolerance and consideration toward securities firms striving to implement the accountability structure chart. "Rather than using it as a regulatory tool, I hope that financial institutions will be granted sufficient exemption and mitigation of sanctions commensurate with their genuine efforts and investment of human and material resources," he said. "If heavy disciplinary actions are imposed despite earnest efforts, it could lead to skepticism about the accountability structure itself, undermining related investments and support."

He also called for active efforts from securities and asset management firms. "The value proposition of restoring trust in the financial industry and protecting financial consumers (the public) is clear under the Lee Jaemyung administration," he stressed. "It should be established and internalized as a company-wide innovation activity involving all employees and departments, rather than being limited to specific departments."