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Korea strengthens penalties on unfair trading activities
Korea’s Financial Services Commission announced that the revised Financial Investment Services and Capital Markets Act has gone into effect to prevent the occurrence of unfair trading activities in Korean capital markets.
The intention: The changes are expected to help detect and prevent unfair trading activities through the following measures:
Introducing a penalty surcharge system on unfair trading activities
Legislating a method for calculating the amount of unfairly gained profits
Providing a leniency to those reporting violations committed by oneself or others
Penalty surcharge – in more detail: The revision introduces a penalty surcharge system on unfair trading activities and enables authorities to impose a penalty surcharge of up to twice the amount of unfairly gained profits.
With the introduction of penalty surcharge, a speedier and more effective sanctioning will now be possible on unfair trading activities
In terms of the procedure for imposing a penalty surcharge, in principle, the FSC is able to impose a penalty surcharge after receiving an outcome of investigation from the prosecution service.
However, when the matter has been consulted with the prosecution service, or if it has been more than a year since the case was first reported to the prosecution service, the FSC is allowed to impose a penalty surcharge even before receiving an investigation outcome from the prosecution service
Calculating the amount of unfairly gained profits – in more detail: The revision establishes a clear legal ground for calculating the amount of unfairly gained profits, which will be a total income minus total cost.
More specifically, the amount of unfairly gained profits will be defined as profits realized, profits unrealized and losses avoided
Calculation methods have been prepared for each type of violation, such as the use of undisclosed material information, manipulation of market price and unfair trading, and the gains made by transactions deemed to be a part of motivation for violation can also be counted towards unfairly gained profits
Moreover, the revision sets out a method for calculating the amount of unfairly gained profits for when an external factor (for instance, presence of a third party) is involved
Leniency in reporting violations – in more detail: The revision establishes a leniency rule for those reporting unfair trading activities of their own or others
This is intended to help facilitate whistleblowing on unfair trading activities committed by a group of individuals in an organized manner
More specifically, the leniency rule can provide a reduction of penalty surcharge between 50% to 100% based on the level of cooperation
Looking ahead: The FSC will continue to ensure the enforcement of the revised rules and root out unfair trading activities in capital markets. The FSC and other related organizations will strictly enforce sanctions based on the principle of zero tolerance to foster a more fair and credible environment in capital markets.
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