Compliance officer

Compliance (준법감시) means conforming to a rule, such as law and regulation, policy, standard, etc. Regulatory compliance becomes the obligation and goal that corporations or public agencies take efforts to ensure that personnel are aware of and abide by relevant laws and regulations. In this regard, the compliance officer seems to be ievitable owing to:
 * - The number of laws and regulations which organizations should observe are on the increase;
 * - Operational transparency is required in terms of corporate governance;
 * - Expanding organizations are in need of consolidated and harmonized sets of compliance controls; and
 * - Various stakeholders including regulatory authorities demand enhanced internal control.

Against this backdrop, the recent amendment to the Commercial Act adopted the mandatory compliance system (준법지원인제도) that listed corporations with total assets of more than 300 billion won to hire one or more compliance officers.

Key words
internal control, compliance, mandatory compliance, listed company

Internal Control v. Mandatory Compliance
Currently, the Financial Investment Services and Capital Markets Act (the “Capital Markets Act”, 자본시장과 금융투자업에 관한 법률) and the Banking Act demand that internal control system should be established within the organization in line with its risk management stragegy and operative to prevent financial and accounting risk, business risk and legal risk. On the other hand, the new compliance system mandated by the newly amended Commercial Act concentrates on the legal risk. A listed company is required to establish the "compliance control standards and procedures" to be observed by officers, directors and employees in their performing job so as to comply laws and regulations, and to carry out corporate management in a proper manner. Such compliance control standard are to be supervised by its standing compliance officer.

Background
Mandatory compliance officer was first introduced to financial institutions including banks, security companies and insurance companies in 2000 right after the IMF Crisis. It was largely felt that internal auditor, outside directors or independent public accountants could not monitor and find any fault with the daily operation of financial institutions.

Accordingly, a bank is required by Article 23-3 of the Banking Act to set up an internal control system, or compliance program, and appoint a compliance officer in charge of it. Almost same provisions are found at Article 28 of the Capital Markets Act, Article 17 of the Insurance Act, respectively.

Pros and Cons
As regards the mandatory "compliance officer", there have been fierce debates over its merit and demerit.

The lawmakers as well as Korean Bar Association representatives asserted this new system was necessary to make corporate management more transparent and efficient. The compliance officer of a listed company will function as a legal expert who helps the company’s management abide by the law and reports any legal breach to its board of directors.

But most listed companies already have their own compliance officers who are responsible for running their in-house compliance programs. So listed companies view the new compliance officer as redundant and expensive, and suspect that the lawmakers had an implicit plan to create jobs for the new lawyers to be turned out by law schools starting 2012.

Conclusion
For a new compliance system to be implemented properly, it is advisable the following requirements be satisfied first:
 * - There must be tangible incentives for listed companies;
 * - The functions of a compliance officer must be differentiated from the internal auditor or audit commitee;
 * - The compliance system should be optional as compliance is a matter to be left to the listed companies themselves in view of their asset size.