On June 30, the National Assembly, during its plenary session, passed the proposed amendment to the Financial Investment Services and Capital Markets Act (the “FSCMA”), which would significantly bolster sanctions against unfair trading activities (the “Proposed Amendment”). The Proposed Amendment, which will be promulgated through a series of procedures including government referral and cabinet approval, will come into effect six months after its promulgation.
 
The Proposed Amendment aims to secure fair market order and prevent negative impact on investors by promptly sanctioning unfair trade practices and facilitating forfeiture of any unfair profits. The Proposed Amendment will newly introduce (i) a provision for imposing administrative penalties on unfair trading activities such as insider trading and market manipulation, (ii) calculation methods and standards for what would constitute “unfair profits,” and (iii) a leniency program applicable for those who voluntarily report their own violations to the regulators or cooperate with enforcement efforts. Key details of the Proposed Amendment are further explained below.
 

• The Proposed Amendment would establish a new provision for the imposition of administrative penalties of up to two times the amount of unfair profits or losses avoided through unfair trading activities (in the event no profit is gained or it is difficult to calculate the exact amount of profit gained, an administrative penalty of up to KRW 4 billion can be imposed).

• While the FSCMA currently only provides for the imposition of administrative penalties with respect to market disruption activities (Article 178-2 of the FSCMA), the Proposed Amendment would allow for imposition of administrative penalties with respect to traditional unfair trading practices such as insider trading (Article 174 of the FSCMA), market manipulation (Article 176 of the FSCMA), and fraudulent unfair trading (Article 178 of the FSCMA).

• If it is found that a criminal fine for the same violation is separately imposed, in addition to the administrative penalty under the above amendment, the relevant administrative penalty can be cancelled or reduced.
   

• The Proposed Amendment would introduce new standards to be used in calculating unfair profits, which serve as the basis for the imposition of sanctions and administrative penalties on unfair trading practices or market disruption activities.

• In principle, the standards for calculating unfair profits would be the “difference between the total income generated from the transaction at issue and the total cost incurred for such transaction.”

• Pursuant to Article 3 of the Addendum to the Proposed Amendment, the new standards would also be applicable to cases under investigation at the time the Proposed Amendment takes effect.
   

• The Proposed Amendment would provide for exemption or reduction of criminal sanctions and administrative penalties in the event of (i) voluntary reporting of one’s own violation or (ii) provision of statement or testimony with respect to a violation committed by another person during the investigation and trial proceedings.

• Pursuant to Article 4 of the Addendum to the Proposed Amendment, this new rule would also be applicable to cases under investigation or pending in court at the time the Proposed Amendment takes effect.
   

As explained above, the Proposed Amendment would newly introduce (i) administrative penalties which could be imposed on top of (in a concurrent manner) the criminal penalties currently imposed with respect to unfair trading activities, (ii) standards for calculating unfair profits (as the difference between the total income and the total costs relating to the transaction at issue) thereby explicitly setting forth a broad range of what could constitute unfair profits, and (iii) a leniency program applicable to those who voluntarily report violations or otherwise provide cooperation, similar to the leniency program for collusion cases under the Fair Trade Act.
 
With respect to the leniency program to be newly introduced, the Capital Market Investigation Operations Manual already provides that in the event of a voluntary report with respect to an allegation of unfair trading activity by a person/entity that has no prior record of carrying out unfair trading activities, such person/entity may be granted leniency. However, the Proposed Amendment would expand (i) the scope of persons/entities that may be granted leniency and (ii) the period of time during which the leniency program may be applicable (i.e., to be applicable during the investigation and trial proceedings).
 
The Proposed Amendment provides that subordinate regulations would prescribe (i) the specific methods of calculating profit gained from each type of unfair trading activity and (ii) the extent to which the leniency program would be applicable. Accordingly, it appears that changes to the subordinate regulations in relation to the foregoing would be announced soon. In addition, as the financial authorities have announced that they intend to carry out rigorous investigations and take strong measures upon identifying unfair trading activities, it is advisable for listed companies and financial companies, as well as investors, to be well aware of the relevant laws to prevent violation of such laws, and to endeavor to strengthen their internal controls and compliance-related manuals/guidelines.

[Korean Version]