1.

General Direction of Changes to the CP System

The KFTC acknowledged certain limitations in operating the CP system as the CP system was based on the KFTC’s internal guidelines. However, as the statutory basis for the CP system will be established by the proposed amendments, the KFTC declared its commitment to make active efforts for the effective operation and promotion of CPs beginning from next year.
 
On the whole, the KFTC’s proposed changes to the CP system are focused on promoting the establishment of CPs, such as expanding incentives and simplifying the criteria for evaluating CPs. The KFTC stated that it would design an effective CP system by establishing detailed CP evaluation criteria to promote the effective functioning of CPs at companies and prevent the abuse of incentives, which was pointed out as an issue previously.
 

2.

Requirements to Qualify for Reduction of Administrative Fines and the Scope of Reduction

In 2014, companies with the CP rating of A or above were eligible for administrative fine reduction (they are only eligible for reduction in corrective order currently). While the fine reduction, as an incentive, has a positive effect of promoting companies’ operation of CPs, some have criticized that companies may abuse CPs to be exempted from their liabilities. In response to such criticism, there is a discussion on whether the CP rating threshold to qualify for fine reduction should be raised to AA.

In regard to the mitigating factors, the KFTC is reviewing ways to appropriately reflect the CP rating and the effectiveness of the company’s CP as mitigating factors. The KFTC is considering granting the basic penalty reduction based on the CP rating, and then granting additional reduction based on the effectiveness of CPs (i.e., whether it detected and/or deterred violations). However, there have also been concerns that such option may become an excessively strict requirement for companies to qualify for penalty reduction, which may in turn have an adverse effect on the promotion of CPs. Because the main objective of the CP system is to prevent violations, the KFTC is reviewing whether to grant additional penalty reduction to companies that made efforts to prevent the recurrence of violations before being investigated by the KFTC.

Lastly, with respect to the percentage of fine reduction, which is the key part of the incentive system, the KFTC is currently considering setting the range at 5%-20%, in reference to the reduction rates previously used before the abolition of the fine reduction system (10%-20% depending on the CP rating) and the rates from overseas jurisdictions (generally 5%-15% depending on how the CP has been operated and whether improvements were made after the occurrence of a violation). The CP rating may affect the KFTC’s determination of the basic fine reduction rate (e.g., 5% for AA and 10% for AAA). The KFTC is also considering granting additional fine reduction for up to 10% depending on whether the CP has been effective and whether the CP has been in operation before the KFTC’s investigation. Simultaneously, the KFTC is reviewing the option of limiting the number of fine reductions to one time only in order to prevent the abuse of the CP system.
 

3.

Limitation on Incentives
 
Under the current CP system, the limitation on, or exclusion from, granting incentives is in place only for the KFTC’s ex officio investigations. Once the fine reduction incentive system is newly introduced, companies meeting certain conditions may also be ineligible for receiving fine reductions. In addition, the KFTC appears to be reviewing measures to relax conditions for limiting incentives in consideration of the fact that (i) it may be inappropriate to limit incentives only for those who committed certain types of violations, such as cartels, and (ii) it would be redundant to consider the same factors that have already been reflected in assessing the CP rating in the first place, such as recidivism.

In addition, there have been opinions that reasonable improvements should be made to the current conditions for deferring the assessment ratings. The proposed improvement to the system is expected to reflect such opinion by, for example, changing the condition from “cases under investigation” to “cases submitted to the KFTC hearing.”
 

4.

New Incentives

In addition to the fine and corrective order reduction as incentives, the KFTC is reviewing whether to grant incentives to encourage companies to adopt effective CPs without reference to the violation of the FTL. For instance, the KFTC seems to be considering giving extra points for Fair Trade Agreement implementation not only in the distribution sector but also in other sectors, such as subcontracting and franchise.

Furthermore, the KFTC plans to lower the guarantee fee of the Korea Credit Guarantee Fund from next year, which requires cooperation with other institutions. In addition, the KFTC is discussing with the Ministry of SMEs and Startups on ways to provide various policy funds.
 

5.

Criteria for and Methods of Ratings Assessment

The proposed changes are likely to simplify the CP rating criteria by removing unnecessary criteria. The KFTC is currently reviewing ways to integrate similar or overlapping criteria and reduce the number of criteria for large companies from 66 to 51. The criteria for granting extra points for evaluation will also be adjusted by deleting or reducing the number of points for certain criteria that are less relevant to the nature of the CP system.
 
In terms of the rating method, the current two-step evaluation system (written and on-site evaluation) is based on certain criteria, and therefore, it has the advantage of securing consistency. However, if the number of companies applying for CP rating increases due to the expansion of incentives in the future, a more careful evaluation may be needed. Therefore, the KFTC is reviewing the possibility of adopting a three-step evaluation system, which will introduce an in-depth interview process for companies with an AA rating or higher based on the results of written and on-site evaluations, in order to ensure a stricter and fairer review if incentives such as fine reduction are granted.