Beginning August 1, 2016, Korea's revised law on the corporate governance of financial companies took effect. On the same day, the FSC announced its year-long review of controlling shareholders of Korean financial companies under the revised law on corporate governance of financial companies, including owners of Korean conglomerates.
On April 28, 2016, the FSC had announced that it had drafted "The Proposed Regulations Regarding the Supervision of Corporate Governance of Financial Companies" (the "Proposed Regulations") as a follow-up measure to the Corporate Governance Act, and the related draft Enforcement Decree.
In the previous regime, corporate governance regulations were complicated and differed depending on the type of the financial business involved. To tackle this issue, the FSC proposed a statutory reform of corporate governance of financial institutions. In July 2015, The Act on Corporate Governance of Financial Companies (the "Corporate Governance Act") was passed by the National Assembly with the purpose of establishing consistent and systemized regulations.
Earlier this year, on March 17, 2016, the FSC then announced the draft Enforcement Decree of the Corporate Governance Act, which provides further clarification on how the Corporate Governance Act should be applied to financial companies. The Enforcement Decree of the Corporate Governance Act passed through the cabinet at the end of July 2016.
Key Details of the Current Proposed Regulations:
While the Proposed Regulations do not include any provisions that deviate from what has already been announced in the Corporate Governance Act and the draft Enforcement Decree, some key details include:
1. Standards for determining whether financial companies' officers and employees may hold concurrent positions in other companies;
2. Standards for internal rules and annual reports regarding corporate governance matters;
3. Standards on establishing and operating internal control policy;
4. Standards for risk management;
5. Specific requirements for the approval of a change of major shareholders, depending on the type of shareholder; and
6. Practical procedures for approving a change of major shareholders, and qualification requirements for the largest shareholder.
Newly Added Key Requirements:
Details that were newly added to the Proposed Regulations include:
1. A financial company will be required to submit a report of an audit committee's work within one month of the end of every semi-annual period to the Financial Supervisory Service (the "FSS");
2. In preparing the annual report on the remuneration system, a financial company will be required to specify details on the remuneration and performance bonus of officers and certain employees; and
3. A financial company must report the establishment of or amendment to its internal control policy to the FSS, and must also install an internal control committee comprised of its: (i) representative director (who will take on the chairman role); (ii) compliance officer; (iii) risk management officer; and (iv) officer in charge of the internal control system.
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