The Financial Services Commission announced that a revision bill of the Financial Investment Services and Capital Markets Act (FSCMA) containing measures to strengthen penalties on unfair trading activities in capital markets was passed at the National Assembly’s plenary session on June 30.

The revised FSCMA creates legal grounds to impose penalty surcharge, introduce a method for calculating unfairly gained profits and grant leniency to those who report their wrongdoing voluntarily. It aims to overhaul the entire penalty system concerning unfair trading activities in capital markets from detection and prevention of stock price manipulation to administrative sanction to criminal punishment.

First, the revised FSCMA establishes a provision on penalty surcharge of up to twice the amount of illegally earned profits (unfair gains), with the maximum penalty amount set at KRW4 billion when there is no unfairly gained profit or it is deemed unfeasible to calculate it. Until now, unfair trading activities in capital markets were punishable only through criminal penalties, taking a long time (two to three years) to bring penalties to the wrongdoer and lacking effectiveness in sanctions. In this regard, with the creation of penalty surcharge, economic sanctions on unfair trading activities can take place in a more swift and effective manner.

Second, the revised FSCMA introduces a clear standard for calculating unfairly gained profits (total profit minus total cost generated by engaging in illicit activities). This will help ensure that the level of punishment is commensurate with the level of economic gain.

Third, the revised FSCMA contains a leniency clause which makes it possible for those reporting their own wrongdoing voluntarily or testifying on other’s illicit activities to receive a reduction in criminal punishment or penalty surcharge. This leniency offered to whistle-blowers will help prevent and detect unfair transaction activities more effectively.

The revised FSCMA containing strengthened penalties on unfair trading activities is expected to go into effect in January 2024, six months after promulgation.

* Please refer to the attached file for details.