1.

Different Standards for Allocating Responsibilities Under the System of Independent Representative Directors

In the case of financial companies that have adopted a multiple independent representative director system (which typically operates as a two-person system consisting of a management representative director and a sales representative director), the financial regulators indicated that it would be advisable to allocate responsibilities among the representative directors based on their jobs’ nature and subject matters, by comprehensively taking into account the duties and authorities of each representative director, the purpose of the responsibilities map system and other relevant factors. For instance, the responsibilities requiring company-wide review, management and operation (such as the preparation of a responsibilities map and the execution and operation of policies, including those pertaining to internal control) should be allocated solely to the management representative director considering their nature, while any responsibilities falling directly within each representative director’s scope of duties should be allocated to such representative director.
 

2.

Potential Conflicts of Interest Arising From Holding Concurrent Offices of Representative Director and Chairperson of Board of Directors

The financial regulators’ position is that while the Corporate Governance Act does not prohibit a representative director from concurrently serving as a chairperson of the board of directors, the principle of checks and balances following the introduction of the responsibilities map may not be efficiently implemented under such dual hatting arrangement. Under the Corporate Governance Act, (i) the board of directors is required to supervise the representative director’s performance of his or her overall management obligations, including internal control, and (ii) the internal control committee, which is a committee within the board of directors, is required to review and assess whether the representative director and the officers have appropriately taken overall management and reporting measures, including internal control measures, and request improvements if necessary. In light of concerns that concurrently holding the positions of representative director and chairperson of the board of directors may create a conflict of interest, the financial regulators recommended that financial companies establish effective internal control mechanisms (e.g., having all of the internal control committee members consist of outside directors) to ensure that the principle of checks and balances under the responsibilities map regime can be effectively implemented.
 

3.

Overlapping Responsibilities Due to Multi-Layered Allocation of Responsibilities

The financial regulators pointed out that in cases where a higher-ranking officer and a subordinate officer both perform identical duties but substantive internal control responsibilities for the relevant duties are allocated to a subordinate officer instead of a higher-ranking officer who receives reports and exercises the decision-making authority, the internal control system may not function effectively as intended. Accordingly, where a higher-ranking officer and a subordinate officer perform the same duties, it is considered more appropriate to assign internal control responsibilities to the higher-ranking officer. This approach aligns with the principle of the responsibilities map system, which states that the management’s responsibilities for internal control should not be delegated to subordinate officers.
 

4.

Failure to Allocate Responsibilities to Key Officers

The financial regulators’ position is that it is necessary to allocate responsibilities to the officers who perform and supervise duties related to such responsibilities, in order to ensure the effective operation of internal control in financial companies, regardless of whether or not they are standing officers and have the authority to approve internal control-related matters. Accordingly, financial companies should ensure that they do not, among others, (i) readily exclude non-standing directors from those to whom responsibilities are allocated, (ii) refrain from allocating responsibilities to certain officers based solely on the reason that they do not have the approval authority over internal control matters, and (iii) allocate less responsibilities to certain officers compared to the scope of responsibilities allocated to such officers described in the business report.

The following cases were presented by the regulators as the cases involving inadequate allocation of responsibilities: (i) the responsibilities were not allocated to the CEO (executive director) who is in a position to exercise substantive influence over material decisions, such as the establishment of management strategies and business plans, on the ground that he or she “only has the duty to monitor as a director under the Korean Commercial Code and does not have the internal control-related approval authority,” and (ii) the chairperson of the board of directors (executive director) was assigned only the responsibilities related to the chairperson role, although his or her duties were described as “overall management” in the 2024 business report.