On Jul. 11, SK FSC,SK FSS proposed disciplinary action guidelines.
SK FSC, SK FSS issued a pilot operation plan for responsibilities structure, proposed Guidelines for disciplinary actions against breach of internal control duties.
Follows SK FSC, GVT Feb. 2024 proposed revisions re internal control, see #200829.
Pilot Operation Plan
The pilot implementation aims to ensure early introduction of responsibilities structure.
Will initially target banks and holding companies whose statutory submission deadline for accountability structure is due earliest, and will then be expanded to other sectors.
Financial companies that wish to pilot a responsibilities map may submit it to SK FSS by Oct. 31, 2024, take management measures from submission date till Jan. 2, 2025.
SK FSS will provide consulting to financial companies submitting a responsibilities map.
Will not hold financial firms responsible as per the Act on corporate governance of financial companies even if internal control management duty is not fulfilled perfectly.
Where financial firms identify, redress legal violations by affiliated executive/employee during a pilot operation period, related disciplinary actions will be reduced/exempted.
Proposed Guidelines
Stipulate major consideration factors and standards for determining disciplinary actions and exemptions in case of violation of internal control management obligations.
The circumstances and extent of occurrence of illegal acts, as well as consequences of illegal acts will be taken into account as factors to be considered for illegal acts.
8 detailed factors to be considered include a failure to fulfill management duties; wide-scale or systematic/concentrated illegal acts; long-term or repeated misconduct.
Direction, condonation, encouragement, neglect by executives; raising issues about the possibility of illegal activities; large-scale customer damage occurred; serious impediment to sound management; damage of financial market trust and order.
4 main factors to be considered for determining effectiveness of measures include whether risk factors are identified; whether appropriate measures are implemented to ensure legal compliance; efforts and achievements to improve internal control.
As well as the rationality and transparency of decision-making procedures.
Where significant illegality is recognized based on factors to be considered for illegal acts, the authorities will directly trigger the procedures for investigating accountability.
Secondly, the authorities will determine whether disciplinary actions should be reduced/exempted, taking into account the presence and level of due care.
Consultation Period
Comments on the draft guidelines shall be submitted by Aug. 30, 2024.
In Jul. 2024, SK FSS held a banking sector internal control workshop, see #219495.
In Nov. 2024, SK FSC,FSS issued pilot status of responsibilities map, see #232197.
Dec. 2024 Guidelines Finalized
On Dec. 11, 2024, SK FSC, SK FSS said the Guidelines for disciplinary actions against breach of internal control duties have been finalized following stakeholders' opinions.
Where a violation of internal control management duties by executives is recognized, a preliminary materiality review committee with external members will be held before issuing an inspection opinion to determine whether responsibility needs to be clarified.
This committee will be operated for two years from the submission deadline of responsibilities structures by financial sector/asset size; after the end of the temporary operation period, the existing procedures for disciplinary actions will be applied.
Where the committee deems that responsibilities should be clarified against executives, it will specify facts regarding a violation, reasons for determining materiality in an inspection opinion, issue a statement to the financial firm concerned.
Guidelines clarify that general reasons for reducing disciplinary actions like financial firms' post-recovery efforts, liability exemption for policy finance will be considered.
Further detailed the definition of factors to be considered for determining illegal acts.
The finalized guidelines will be effective from Dec. 11, 2024, applied to cases where executives of financial companies that have submitted a responsibility structure as per the Corporate governance act violated the internal control management obligations.
However, for 9 financial holding firms, 9 banks that participated in the pilot operation, the guidelines will be applied after the pilot operation period ends on Jan. 2, 2025.
Regulators
SK FSC; SK FSS
Entity Types
B/D; Bank; BHC; Ins; Inv Co; MSB
Reference
PR 12/11/2024; PR, CP, 7/11/2024; Law 19913, 1/2/2024
