"It Must Not Become a 'Death Note'... Experts Share Their Suggestions [Controversial Responsibility Structure Map] ③"

Flexible Response and Follow-up Measures by Authorities Are Crucial
Clear and Specific Guidelines Needed
Sufficient Exoneration and Application According to Company Size

What institutional improvements are needed to prevent the newly implemented accountability chart from becoming, as feared, an "ineffective shell system" or a "tool for shifting blame"? Experts agree that, since the system is still in its early stages and the discretion of regulatory authorities plays a significant role, it is crucial for the authorities to respond flexibly and implement follow-up measures. They argue that, in order to prevent further confusion in the field, clear and specific standards should be presented as soon as possible, while the system should be operated flexibly through sufficient exemptions and application based on company size.

This aligns with the findings of a survey conducted by Asia Economy targeting practitioners at securities firms and asset management companies. Both sides pointed out the need to improve certain procedural challenges, such as reporting deadlines, in consideration of the financial investment industry's need to respond quickly to changing market conditions.

There were also strong calls to promote the system from a supportive perspective aimed at strengthening internal control capabilities within financial companies, rather than from the regulatory authorities' own convenience. In addition, it was emphasized that further discussion is needed regarding smaller financial firms that have not yet adopted the accountability chart. In the medium to long term, it was suggested that flexible application methods should be considered based on company size and other factors.

Asia Economy aims to provide a detailed look at the institutional improvement direction for the accountability chart through individual interviews with Sunggu Jeong, Attorney at Law at Sejong Law Firm, and Hyunchul Park, Partner at PwC Consulting, both of whom have been involved in the preparation and consulting work for accountability charts.

Sunggu Jeong: "The Accountability Chart Should Not Become a Death Note"

"If the system is operated solely with the intention that there must always be an executive held responsible for every financial incident, the accountability chart becomes a kind of 'death note.' Executives who have fulfilled their responsibilities should be granted bold exemptions, while sanctions against the company itself should be strengthened."

Sunggu Jeong, a leading expert in financial regulation at Sejong Law Firm, pointed out that for the accountability chart, implemented this year, to be successfully established, regulatory authorities should not view the system solely as a means of imposing sanctions for accountability.

Sunggu Jeong, Attorney at Law Sejong Law Firm

Attorney Jeong stated, "In the early stages of implementation, even if a financial incident occurs, sanctions should not be imposed mechanically based on the scale of the incident. If there is evidence that an executive made every reasonable effort, it should be actively recognized as having exercised 'considerable care.' In particular, it is important to establish precedents for the application of Article 35-2, Paragraph 2 of the Act on Corporate Governance of Financial Companies."

This paragraph stipulates that if an executive has faithfully fulfilled their management obligations, including internal controls, in the event of a financial company incident, the financial authorities may consider reducing sanctions. In other words, there need to be cases where "an incident occurred, but internal controls were exemplary."

Attorney Jeong also said, "The principal form of sanctions should shift from personal sanctions (including criminal penalties) to corporate sanctions (such as fines and administrative penalties)." He evaluated that bold exemptions for executives who have fulfilled their responsibilities would help the system take root. However, he added that the introduction of "administrative sanctions with procedural legitimacy equivalent to judicial procedures" should precede this.

While the United Kingdom, which previously introduced the accountability chart, applies a principles-based regulatory approach, Korea applies a rules-based regulatory approach. As a result, the process leading to executive reprimand is expected to differ significantly. In this regard, Attorney Jeong noted, "In Korea, when an incident occurs, identifying the responsible person according to the accountability chart and determining whether they fulfilled their duties will likely become key issues. This has led to jokes in the legal community that a CEO can avoid responsibility under the accountability chart simply by holding internal control meetings every day."

He pointed out that if the focus is solely on whether the accountability chart was followed, rather than whether it was properly implemented, such outcomes will result. He urged, "Regulatory authorities must send a clear signal to dispel the market's vague anxiety that the accountability chart is merely a tool for holding management accountable for outcomes."

Hyunchul Park: "Lack of Specificity... Obstacles Remain for Small and Medium-Sized Firms"

"There is a lack of concrete guidelines for disciplinary action and sanctions. Improvements are needed."

Hyunchul Park, Head of the Financial Crime Prevention Center at PwC Consulting, first called for clear guidelines from the financial authorities regarding disciplinary action and mitigation. Park stated, "Due to the lack of specificity in the accountability chart, it is unclear in which cases sanctions will be imposed, and the degree of effort, inspection, and documentation by executives who have fulfilled their management obligations is also ambiguous."

Hyunchul Park PwC Consulting Partner

Having conducted numerous related consulting projects, Park said, "The part that the industry is most curious about is the 'first accountability chart case.' There are distinctions regarding the circumstances and severity of violations and their outcomes, but there is still curiosity about which specific cases will actually be sanctioned."

He also noted, "In a similar vein, there are many industry questions about 'exemptions and mitigation of sanctions in consideration of considerable care,' such as 'what efforts' and 'to what extent' are required. There are also concerns regarding the duties of the board chair and the overall management responsibilities of the CEO." He explained that, due to the lack of clear guidelines from the financial authorities, confusion is widespread in the field.

Park predicted that the multilayered organizational structure of securities firms would also hinder the establishment of the accountability chart. The financial authorities have presented the principle that accountability should be assigned only to the highest-ranking executive, such as the vice president. However, in most securities firms, there are multiple layers of executives below the division head. Since the "highest-ranking executive" designated by the authorities and the "practical executive" responsible for day-to-day operations are different, concerns about confusion and effectiveness due to overlapping responsibilities are inevitable. He added that small and medium-sized securities firms, which have limited personnel, face even greater challenges.

For this reason, Park argued that financial authorities should show tolerance and consideration for securities firms striving to implement the accountability chart. He said, "Rather than using it as a regulatory tool, I hope the authorities will grant sufficient exemptions and significant mitigation of sanctions in proportion to the human and material resources invested and the efforts made. If heavy disciplinary action follows despite sincere efforts, the accountability chart may be dismissed as useless, discouraging related investment and support."

He also called for active efforts from securities firms and asset management companies. Park emphasized, "Under the Lee Jaemyung administration, the value proposition of restoring trust in the financial industry and protecting financial consumers (the public) is clear. All executives, employees, and departments must turn this into a cultural movement through company-wide innovation activities."