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Governance

The board of directors of a financial services company comprises executive directors, non-executive directors (non-executive inside directors), and outside directors (non-executive outside directors). Non-executive directors and outside directors are mutually exclusive. Non-executive directors do not take part in the day-to-day management decisions. Outside directors are independent of the management. They are appointed at the general shareholders’ meeting with the recommendation of the board’s director selection committee; outside directors must make up the majority of the director selection committee.

Composition of Board of Directors

Outside directors must make up at least three and at least half of the board members for (1) commercial banks, financial investment services providers, insurance companies, and credit card companies with assets of KRW5 trillion or more, and (2) mutual savings banks with assets in excess of KRW700 billion.

Persons Ineligible for Outside Director

The following persons are ineligible to serve as an outside director of a financial services company:

  • (a) A minor;
  • (b) A person who has been declared mentally incompetent by the court;
  • (c) A person in bankruptcy;
  • (d) A person with less than five years elapsed since the completion of a court-ordered prison sentence;
  • (e) A person with less than five years elapsed since being removed or discharged from employment for a breach of the Banking Act or any other financial laws and regulations;
  • (f) The largest shareholder and any persons specially related or connected to the shareholder;
  • (g) The spouse and children of a major shareholder;
  • (h) A current or former (during the previous two years) officer or employee (of either a financial services company or its subsidiary);
  • (i) The spouse and children of a current officer;
  • (j) A current or former (during the previous two years) officer or employee of a company with significant business relations with the financial services company; or
  • (k) A current officer or employee of a company where a current officer or employee of the financial services company serves as an outside director.

Outside Director Selection Committee

Outside directors are selected with the recommendation of director selection committee made up of outside directors who constitute the majority of the selection committee. The selected candidates are then approved at the general shareholders' meeting. (For listed companies, a person recommended by a shareholder who holds at least 1 percent of the company's outstanding voting shares must be included in the candidate list. This measure is intended to strengthen minority shareholder rights and provide a check on large shareholders.)

Audit Committee

An operating audit committee is mandatory for banks and financial services companies whose outside directors must constitute at least three and at least half of the board members. An audit committee requires a minimum of three directors, and a minimum of two-thirds (2/3) must consist of outside directors. For listed financial services companies whose assets at the most recent year-end financial reporting exceed KRW2 trillion, the audit committee must be headed by an outside director and include at least one director with accounting or financial expertise. For the commercial banks, a candidate selection committee made up entirely of outside directors must be formed for audit committee membership. The selected candidates may be presented to the general shareholders’ meeting for appointment only with the consent of the two-thirds (2/3) of the outside directors. The eligibility requirements for audit committee members are same as those for outside directors.

Internal Controls and Compliance

Together with the outside director and audit committee regimes, internal controls and compliance constitute the core of corporate governance structure. Whereas outside directors and audit committee are particularly applicable to large financial institutions, internal control standards and compliance regimes apply to all financial services companies irrespective of the size, the types of business, and the listed status.

For compliance, at least one compliance officer must be appointed to monitor internal control compliance, investigate any cases of noncompliance, and report them to the audit committee. A vote by the board of directors is required to appoint or discharge a compliance officer. Foreign bank branches may appoint a compliance officer without satisfying the board approval requirement.

Management

Officers who constitute the senior executive management of financial services companies must satisfy certain eligibility requirements such as the possession of appropriate professional experience and expertise before they can serve as senior executives of financial services companies. Under the law, a person may not serve as an officer of a financial services company if that person is:

  • (a) A minor;
  • (b) A person who has been declared mentally incompetent by the court;
  • (c) A person in bankruptcy;
  • (d) A person with less than five years elapsed since the completion of a court-ordered prison sentence; and
  • (e) A person whose suspended prison sentence remains in effect;
  • (f) A person directly responsible for the revocation of FSC/FSS business authorization/approval and with less than five years elapsed since the revocation; and
  • (g) A person with less than two years elapsed since being removed or discharged from employment for a breach of the Banking Act or any other financial laws and regulations.

A person who fails to satisfy any of the minimum eligibility requirements after becoming an officer may no longer serve as a company officer. In addition, no officer of a financial services company may currently serve as an officer of another for-profit company.