Financial authorities have declared war on unfair trading forces, including stock manipulation. They will swiftly freeze accounts suspected of unfair trading, apply a zero-tolerance policy, and increase the reward for reporting to 3 billion won (US$2.24 million), up from 2 billion won (US$1.49 million).
On Sept. 21, the Financial Services Commission (FSC) held a ceremony commemorating the tenth anniversary of the launch of the Capital Market Investigation Team at the Government Complex Seoul, along with the Financial Supervisory Service (FSS), the Seoul Southern District Prosecutors’ Office and the Korea Exchange. During the event, it announced plans to improve the unfair trading response system with the measures mentioned earlier.
Financial authorities plan to introduce a system for swiftly freezing accounts suspected of unfair trading during the investigation process. This measure aims to prevent additional illegal activities and the concealment of unjust gains. Since the introduction of the asset freezing system requires consultation with the Ministry of Justice and amendments to the Capital Market Act, it is expected to take some time before implementation.
Given the potential implications for infringement on citizens’ property rights, it is necessary to consider various opinions and engage in a consultative process. While the introduction of asset freezing authority was discussed, the inclusion of authority to secure communication records requires further inter-agency deliberations and consensus-building, and it has been excluded from this announcement.
In addition, they have decided to actively utilize effective investigative methods to secure as much evidence as possible related to the allegations.
The powerful investigative authority granted to financial authorities’ investigative personnel, including compulsory on-site investigations and confiscation rights, will be expanded. Until now, “general cases” assigned to the FSS did not utilize compulsory investigative authority. In the future, there are plans to enhance joint investigations with the FSC to enable the swift collection of initial evidence and expedite investigations.
In consideration of the challenges posed by institutional and departmental barriers that hindered efficient investigations, a comprehensive review format under the Securities and Futures Commission will be adopted for complex illegal activities. The integration of market surveillance and psychological operations related to abnormal trading on the exchange will enhance efficiency, and major emergency incidents will be shared among institutions from the early stages of the incident.
In relation to strengthening sanctions, a bill has been introduced in May that proposes restricting individuals with a history of unfair practices from participating in capital market transactions for up to 10 years and preventing them from becoming executives of listed companies or financial firms. Additionally, a bill that allows fines of up to twice the unfair trading gains is set to be implemented in January next year.
At the market surveillance stage, efforts to enhance response capabilities will include promoting the reporting of unfair trading activities. To establish the reporting of unfair trading as a primary means of detecting illegal activities, the reward limit will be increased from the current 2 billion won (US$1.49 million) to 3 billion won (US$2.24 million), and an anonymous reporting system will be introduced.
Furthermore, existing reward funds, which are currently covered by financial companies as supervisory burden fees, will be paid from the government budget starting from next year. To detect new types of unfair trading, the analysis period for market manipulation will be extended from a short term of up to 100 days to a long term of 6 months and 1 year, and market alert criteria will also be enhanced.