On March 15, the Financial Services Commission announced plans to improve its financial company governance structure. Improvements include expanding the scope of eligibility review for major shareholders, enhancing transparency in CEO selection, strengthening accountability for outside directors, enhancing the effectiveness of internal audits, and strengthening disclosure of high salaried employees. The main contents are as follows.

1. Streamline major shareholder eligibility screening system

  • Major shareholder eligibility review reorganization
    • The current largest shareholder ⇒ the largest shareholder + the shareholders who are related parties to the largest shareholder (including the largest shareholder of the corporation if the largest shareholder is a corporation) + the shareholders who are de facto influential major shareholders
    • Excludes related parties of the largest shareholder or simple major shareholders who are unlikely to engage in management
  • Strengthening requirements for major shareholder eligibility screening: Add in case of imprisonment sentence or more for violation of the Act on Specific Economic Crime Weighted Penalty
  • Clarify the maximum shareholder"s voting rights restriction imposed by the reason for disqualification to more than 10%
  • Establishment of a standard for imposing a restriction on voting rights on corporate shareholders: a fine of more than 100 million won
  • Establishment of basis for issuing share disposition orders when major shareholder fails to implement the order of the Financial Services Commission to restrict voting rights

2. Appointment of CEO and transparency and independence of outside directors

  • Active qualification requirements of the CEO (financial expertise, fairness, morality, job integrity, etc.) as legal mandatory ⇒ Specific qualification requirement can be made by the financial company voluntarily
  • It is mandatory to incorporate matters related to CEO candidate management and CEO succession procedures into internal governance structure regulations
  • For collective suitability of board composition, the directors candidate recommendation committee is obliged to perform suitability evaluation when recommending director candidates
  • Relaxing requirements of shareholder proposal rights among minority shareholders
  • In order to strengthen the independence of outside directors, external evaluation is mandatory at the time of re-appointment
  • The principle of sequential substitution of outside directors for continuity of business performance and management checks

3. Strengthening the independence of the Directors Candidate Recommendation Committee

  • Prohibition of the representative directors' participation in the nominating committee for election of auditors and outside directors
  • Two-thirds or more of executive recommendation committee consists of outside directors

4. Improvement of appointment requirements of auditors and enhancement of auditing effectiveness

  • The standing auditor or the standing audit committee member shall not be held the position in the same financial institution for more than 6 years as same as the other audit committee members who are outside directors
  • Establishment of a standing auditor or a standing audit committee member eligibility (Person specified by Presidential Decree as a person with abundant expertise and experience in fields such as who finance, economics, management, law, accounting, etc.)
  • Ensure that the members of the Audit Committee have a term of at least two years
  • Restrictions on other board committee’s membership of the Audit Committee member (excluding the Compensation Committee, which has a work relevance to the Audit Committee)
  • Matters related to independent management of audit organization are obliged to describe in the internal governance regulations and disclosure
  • Mandatory appointment of internal audit officers for large financial companies

5. Strengthening internal control and risk management effectiveness and transparency

  • Impose an obligation of duty of care to obey internal control standards and risk management standards (Preparation of preventive measures, comprehensive inspection, preparation of measures such as internal disciplinary measures, etc.) for executives who have internal control and risk management responsibilities (CEO, compliance officer, risk management officer, and risk management committee member)
  • Provide grounds for sanctions on financial companies and their officers in case of insufficient financial institution compliance with internal control and risk management standards and there is a concern about consumer damage and financial market soundness deterioration

6. Strengthen and improve the disclosure of employee compensation of financial companies

  • Mandatory disclosure of individual remuneration for high salaried employees: Executives with a total remuneration of over 500 million won, employee with more than 500 million won as top 5 remunerations, executives with a performance related remuneration of 200 million won or more, financial investment staffs, other performance based and deferred remuneration employee
  • In the case of a listed financial institution with total assets of 2 trillion won or more, it is mandatory for shareholders meeting to a compensation plan for registered officers. Mandatory review of compensation plans at the time of appointment
  • To the outside directors, auditors and audit committee, a separate compensation system that does not work with the company"s financial performance is mandatory
  • Allowing the conservative committee to autonomously determine the scope of employees to be compensated for performance compensation payments

7. Other amendments

  • Appointed by the board of directors as one of the chief business executives in charge of strategic planning, financial management, and risk management
  • Acceptance of collective investment and variable insurance business as a result of financial approval as well as among financial companies in the subsidiaries of financial holding companies
  • Adjustment of officer disqualification requirement related to sentence of sentence: 5 years after sentence in case of fines for sentence of disqualification for executives, in case of postponement of sentence in case of sentence of more than sentence, until the end of sentence of postponement, After 3 years, if the punishment is more than a deposit

8. Future Schedule

The Financial Supervisory Commission (FSC) will announce the legislation, the enforcement decree and the supervisory regulations on the financial company"s corporate governance structure (March 15 - April 24, 2018) I will submit it. It will also complete the amendments to the enforcement ordinance and supervision regulations by June 2018. In addition, as a follow-up measure when passing the legislative amendment bill, the legislative process for revising the enforcement ordinance and supervisory regulations associated with the revision of the law will be further implemented in 2019.

In order to improve the governance structure of these financial institutions, each financial institution is required to review and improve the current system, organization, procedures and operating methods.