Responsibility Maps for Specialized Credit Finance Companies and Savings Banks Lacking... "Conflict-of-Interest Prevention Needed When CEO Also Chairs Board"

FSS Consults 52 Large Credit Finance Companies and Savings Banks
Concentration, Duplication, and Omission of Executive Responsibilities Identified

With around ten days remaining until the deadline for submitting responsibility structure charts for major credit-specialized financial companies and savings banks, a number of deficiencies have been identified. It was found that even basic requirements of the responsibility structure chart, such as specifying conflict-of-interest prevention measures when the CEO concurrently serves as the board chair, are not being properly implemented. The financial supervisory authorities have announced plans to strengthen senior management accountability and are working to stabilize the system.

On June 21, the Financial Supervisory Service announced the “Status and Future Plans for the Pilot Operation of Responsibility Structure Charts for Major Credit-Specialized Financial Companies and Savings Banks.” The Financial Supervisory Service is conducting a pilot program for a total of 52 institutions that must implement responsibility structure charts by July 2, specifically 22 credit-specialized financial companies with total assets of at least KRW 5 trillion and 30 savings banks with total assets of at least KRW 700 billion.

As a result of consulting with financial institutions participating in the pilot program, the Financial Supervisory Service identified several issues: inadequate documentation of recommendations related to the dual role of CEO and board chair, concentration of responsibilities among management executives, duplication and omission of responsibilities related to financial business, and insufficient documentation within the responsibility structure charts.

First, the pilot operation for the securities and insurance sectors revealed the same key deficiencies that had been pointed out previously. Specifically, shortcomings were found in the following areas: recommendations to establish internal controls to prevent conflicts of interest; the need to allocate responsibilities considering the actual management and oversight authority, regardless of whether outside directors serve full-time or whether inside directors have approval authority; and the need to assign responsibilities to senior executives when their work overlaps with that of lower-level executives.

A Financial Supervisory Service official emphasized, “It is necessary to establish effective internal control measures, such as implementing conflict-of-interest prevention strategies when the CEO also serves as the board chair.”

There were also cases in which specific executives were assigned responsibilities unrelated to their primary work. For example, the head of the management department at Company A was responsible for 19 distinct tasks, including not only core management duties such as human resources and compensation, but also IT system operation and management (which require expertise), internal accounting management (a designated responsibility), and financial business tasks such as loan disbursement.

Numerous cases of overlapping or missing responsibilities among executives were also detected. At Company B, the head of the credit review department and two business executives were each assigned credit review responsibilities, but the specific responsibilities and management actions for each executive were not clearly distinguished. At Company C, three executives were assigned responsibility for loans related to products managed by their respective departments, but detailed information about post-management of products prior to planning or transfer was omitted for some executives.

There were also instances where the details of responsibilities and management actions were ambiguously described, or where irrelevant information was included. In addition, many companies simply repeated the description of management obligations at the same level as the details of responsibilities, or described them at the level of individual work tasks.

The Financial Supervisory Service official stated, “Given that the need for improvements among large companies has been confirmed through this consulting, it is expected that small and medium-sized companies scheduled to introduce responsibility structure charts in the future will also face practical challenges. We will work to ease the burden on financial institutions to the extent that it does not undermine the effectiveness of the system and continue to seek ways to strengthen senior management accountability and stabilize the system.”

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