Financial Supervisory Service presses 25 financial firms whose role is unclear as executives analyze accountability structure
According to the Financial Supervisory Service’s analysis of the current status of the pilot operation of the accountability structure, large financial investment companies (securities and asset management companies) and half of insurance companies may have conflicts of interest. Unlike financial holdings and banks, the CEO also serves as the chairman of the board of directors. The FSS pressed to come up with measures to prevent conflicts of interest.
The Financial Supervisory Service announced the current status of the pilot operation of the accountability structure and future plans on the 26th. The accountability structure is a system that clearly stipulates responsibilities for each position of financial company executives, and is also called the “Financial Edition Serious Accident Punishment Act”. It was introduced to prevent financial accidents by strengthening internal control. The legal basis was laid by revising the Act on Corporate Governance of Financial Companies (Governance Act).
Earlier, the Financial Supervisory Service conducted a pilot operation on 18 financial holdings and banks and 53 large financial investment and insurance companies before implementing the accountability structure in earnest.
As a result of the pilot operation, unlike financial holdings and banks, 25 representative directors, or 47.1% of the total 53 companies, were concurrently serving as chairman of the board of directors for financial investment companies and insurance companies such as securities companies and asset management companies. Although concurrent positions are not prohibited under the Governance Act, it was pointed out that the principle of checks and balances following the introduction of accountability structures may not work properly.
The Financial Supervisory Service recommended that financial investment companies and insurance companies, which remained in the same position, come up with measures to prevent conflicts of interest. As a result, several financial investment companies and insurance companies reported to the Financial Supervisory Service that they will form an internal control committee under the board of directors with all outside directors to prepare an internal control device.
It was also found that eight financial investment and insurance companies with different representatives in charge of management organizations and some sales organizations do not have clear standards for allocating responsibilities, causing confusion in practice. Due to the nature of the responsibility, the FSS recommended that the responsibility be distributed to the management representative in charge of inspection, management, and operation.
In some cases, many financial investment and insurance companies have overlapping responsibilities by allocating internal control responsibilities to lower-level executives (head of the headquarters) who report rather than standing members (head of the division) who have the authority to make decisions. The Financial Supervisory Service asked top executives to allocate responsibilities for the effective operation of internal control if the work of upper and lower executives is consistent.
Responsibilities for key executives responsible were also omitted. There have been cases in which responsibilities were not allocated because there was no right to make a decision, or only responsibilities to the chairman of the board were allocated even though the duties in charge were disclosed as the general manager in the business report. The Financial Supervisory Service requested that executives perform related tasks be allocated responsibilities regardless of whether they work full-time or whether they have the right to make a decision.
The Financial Supervisory Service said, “It will take a considerable amount of time for the new system to operate effectively as the accountability structure-based internal control system is in the early stages of its introduction,” adding, “We will also support the stable settlement of the system in accordance with the implementation schedule of the accountability structure for each business sector in the future.”
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