Shinhan Investment & Securities will change its CEO due to a 1.3 billion won operational loss incident and will apply the responsibilities structure (a document outlining the specific duties of financial institution executives) to its operations starting in February next year.
Unlike holding companies and banks that must submit their responsibilities structure to the financial authorities by January 2, 2025, major securities firms only need to report to the authorities by July next year. However, Shinhan Investment & Securities, which revealed internal control weaknesses due to a major financial incident, plans to introduce its responsibilities structure about five months ahead of Shinhan Financial Group's schedule. If carried out as planned, it is expected to be the first case among domestic securities firms to reflect the responsibilities structure in practice.
According to the financial investment industry on the 23rd, Shinhan Investment & Securities plans to immediately apply the relevant system to its operations starting in February, after completing the group-level responsibilities structure operating system by January next year. Earlier, Shinhan Investment & Securities established an executive responsibility technical document and a responsibilities framework in May, and in August, it produced and distributed an internal control manual for department heads.
The responsibilities structure holds that when financial accidents such as embezzlement, breach of trust, or mis-selling occur in a financial institution, responsibilities related to the work will be asked of the CEO. All C-level executives, including the CEO, Chief Risk Officer (CRO), and Chief Customer Officer (CCO), are included as subjects of responsibility designation. The intent is to strengthen internal control responsibilities by identifying the ultimate responsible person for financial incidents.
With the implementation of the revised Financial Company Governance Act in July this year, financial holding companies and banks are required to submit their responsibilities structure to the financial authorities by January 2, 2025. The submission deadline for securities firms is less urgent. Securities firms with total assets of 5 trillion won or more must submit their responsibilities structure by July next year, while the remaining securities firms have until July 2026.
The deadline for Shinhan Investment & Securities to submit its responsibilities structure is July next year. However, this securities firm recently incurred a loss of 1.3 billion won during the trading process of a liquidity provider for exchange-traded funds (ETFs), leading to an investigation by the Financial Supervisory Service. A liquidity provider is expected to continuously present buy and sell bids on ETF or equity warrant securities (EWS) to induce stable price formation, but they incurred significant losses by engaging in inappropriate exchange trading.
Due to this incident, Kim Sang-tae, the president of Shinhan Investment & Securities, who has one year left in his term, has expressed his intention to resign early. Shinhan Financial convened a subsidiary CEO candidate recommendation committee on the 5th of this month and proposed Lee Sun-ho, the head of the asset management division at Shinhan Investment & Securities (vice president), as the next president. Given the current atmosphere, it appears that Shinhan Investment & Securities is seeking to immediately apply the responsibilities structure to its operations early next year when Lee takes over the presidency, demonstrating its intention to strengthen internal controls.
As the trend of financial authorities strengthening supervision and inspections of the capital market continues, other major securities firms are also expected to accelerate the early adoption of responsibilities structures. Mirae Asset Securities has selected an external consulting firm to proceed with the necessary steps to introduce the responsibilities structure. A representative from Mirae Asset Securities noted, "If a draft is completed around January next year, we will officially begin discussions on subsequent tasks."
NH Investment & Securities formed a task force (TF) related to the responsibilities structure in April this year and is preparing to introduce the system with an external law firm. KB Securities is also forming a related TF and has selected Deloitte Anjin as a consulting partner. Kiwoom Securities and Meritz Securities are also conducting related work with the goal of introducing the responsibilities structure before July next year. However, these securities firms stated that the specific timing of implementation is undecided.