INSIGHTS
-
Newsletters VIEW MORENewslettersLegislative Update on Class Actions, Punitive Damages and SAPA – Class Action & Punitive Damages in Korea The legislative bills to create a class action and punitive damages system in Korea still remain pending, but have not yet been submitted to the legislature. In the meantime, we think it would be useful to also consider the requirements of the Serious Accidents Punishment Act (“SAPA”) which will become effective on January 27, 2022, as this law also has a close nexus to class actions and punitive damages. In this newsletter, we consider the “Serious Public Accidents” provision of SAPA. SAPA defines a “serious public accident” as an accident caused by defects in the design, manufacture, installation or management of “raw materials, products, public use facilities or public transportation” involving at least (i) one death, (ii) ten injuries requiring at least two months of treatment, or (iii) ten illnesses requiring at least three months of recovery time. SAPA imposes a duty on company management to take proactive measures to prevent issues such as product defects and serious accidents on their premises. Further, management at companies whose products cause a serious public accident could also face legal liability under SAPA. Theoretically, even failures in the sales or distribution process could also lead to SAPA liability. The scope of SAPA liability can be confusing, so we provide below a quick way to identify those accidents which can implicate SAPA. For this purpose, we think it is useful to consider three categories of accidents, i.e., those involving (i) raw materials or products, (ii) public use facilities or (iii) public transportation. Some obvious examples of the first category (raw materials or products) would include accidents caused by chemical substances or product components. As to who would be liable under SAPA, this would clearly include the manufacturer, but also those involved in the distribution process who failed to implement a system to notify consumers about the potential risks. Some examples of the second category (public use facilities) could include accidents caused by faulty construction, fires, crowd safety incidents (e.g., a stampede at a concert hall caused by poor planning) or even an outbreak of a virus at a hospital. This list can become very long, since public use facilities can be any place open to the public. Thus, the operators of such facilities must make sure that they have the right safety management system, along with having the right personnel and budget in place for operations in compliance with SAPA and other Korean EHS law requirements. The third category (public transportation) would include accidents involving any mode of public transport, e.g., planes, trains and automobiles. The examples here also become extensive, e.g., accidents caused by defective or improperly maintained buses or a fire caused by a defective automobile part. In cases involving public transportation such as buses, SAPA could also impose liability on both the vehicle manufacturer and transport business operator. Given the potential criminal implications, SAPA imposes a clear need for companies to reassess their operations and eliminate any risk factors, e.g., by making sure that there are no gaps in their compliance with Korean EHS laws. Incidents which implicate SAPA can also easily involve class actions and punitive damages, thereby demanding a more comprehensive review of potential liabilities. [Korean version] .content_view .view_area ul li:before { top: 13px; }2021.05.17
-
Newsletters VIEW MORENewslettersAmended FSCMA Enforcement Decree Passed at Cabinet Meeting: Reform of Regulations on Information Barriers and Others The proposed amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act (the "FSCMA"), which contain significant changes to the requirements relating to information barriers (informally referred to as "Chinese walls") and outsourcing by financial investment companies, were passed at the Cabinet Meeting held on May 11, 2021. The information barrier regulations in their current form were legislated in February 2009 at the time of the initial enactment of the FSCMA. Because these regulations expressly enumerate specific types of business activities that are required to be separated from one another and specify the methodologies for implementing such separation, they imposed excessive regulatory burden on financial investment companies and limited their ability to voluntarily strengthen their internal control measures or restructure their organizations to accommodate company-specific circumstances. To address such shortcomings, the Financial Services Commission (the "FSC") has been seeking to transform the existing information barrier regulations into a principle-based framework that would enable financial investment companies to design and operate their own information barrier system as part of their internal control standards in a manner that best serves their respective business objectives. As a result of these efforts, on April 29, 2020 the National Assembly passed amendments to the FSCMA which codify the principle-based framework so that companies can implement internal control measures tailored to their circumstances and at the same time strengthen the regulators' supervision and enforcement authority. The amended FSCMA took effect from May 20, 2021. The follow-on amendments to the Enforcement Decree of the FSCMA passed at the Cabinet Meeting on May 11, 2021 put into place subordinate regulations necessary to enforce the revised regulations on information barriers under the amended FSCMA. New Information Barriers Regulations Specifically, the amended FSCMA has abolished regulations that (i) prohibit officers and employees of financial investment companies from holding concurrent positions across different lines of businesses (e.g., investment dealing/brokerage, trust, collective investment, investment banking and prime brokerage businesses) and (ii) require financial investment companies to maintain physical segregation for different lines of business. Instead, the amended FSCMA sets forth basic principles for the operation of information barriers within each financial investment company as well as with third parties including affiliates, and requires individual financial investment companies to establish internal control standards consistent with these principles. The amended FSCMA also states that the Enforcement Decree will specify the types of information that must be protected by information barriers and the information barrier provisions that must be included in the internal control standards. The amended Enforcement Decree of the FSCMA designates two categories of information that must be protected by information barriers: (i) material non-public information and (ii) information pertaining to the sale, purchase or management of clients' assets. The second category consists of information on clients' sale, purchase and ownership of the financial investment products as well as information on the composition and management of collective investment assets, discretionary investment assets and trust assets. Notwithstanding such designation, the amended Enforcement Decree provides an exemption under which information that falls under the second category would be exempted from the separation requirement, provided that (i) considering its nature, the information would not potentially undermine investor protection and fairness in markets, (ii) the information when shared across different business groups or with third parties would not likely create a conflict of interests and (iii) relevant financial investment companies have determined that the information is permitted to be shared pursuant to their internal control standards and have publicly disclosed such determination in accordance with the Enforcement Decree. In addition, the amended FSCMA and the Enforcement Decree require the following points to be included in the financial investment companies' internal control standards: (i) the standards and procedures for operating information barriers; (ii) the requirements and procedures for over-the-wall exchange of information on an exceptional basis; (iii) operation of internal organization and designation of personnel responsible for overseeing and managing conflicts of interests, (iv) the types of transactions susceptible to conflicts of interests; and (v) accountability for the use of information subject to information barriers in breach of the internal control standards. Under the amended FSCMA and the Enforcement Decree, financial investment companies are required to (i) regularly monitor the adequacy and effectiveness of their internal control standards,(ii) conduct officer and employee training on the laws and regulations relating to information barriers and internal control standards, (iii) designate an executive officer or an employee to independently oversee matters pertaining to information barriers (the registered compliance officer would be permitted to also serve such function), (iv) operate a surveillance system that monitors segregation of information, and (v) disclose relevant sections of the internal control standards pertaining to key elements of the information barriers. Outsourcing by Financial Investment Companies The outsourcing regulations under the FSCMA prior to the amendments on April 29, 2020 effectively prohibited financial investment companies from outsourcing to third parties any activities regarded as core functions to their licensed business activities while permitting the outsourcing of only non-core functions. The amended FSCMA in principle permits financial investment service providers to outsource even certain core functions to duly licensed and registered third parties. However, the amended FSCMA specifically states that the internal control functions that involve decision-making authority as prescribed by the Enforcement Decree are not permitted to be outsourced to a third party. In this regard, the amended Enforcement Decree stipulates that the following functions are prohibited from being outsourced: (i) functions performed by the compliance officer, (ii) internal audit, (iii) risk management and (iv) credit risk analysis and assessment. To summarize, under the amended FSCMA and Enforcement Decree, all functions other than the four types of functions specifically described in the Enforcement Decree (as summarized above) are in principle permitted to be outsourced, so long as a post-outsourcing report is filed with the regulator within two weeks from commencement of the outsourcing arrangement. However, outsourcing of essential functions directly related to the licensing and/or registration work should be subject to the filing of a pre-outsourcing report no later than seven days prior to commencement of the outsourcing arrangement, and these functions must be outsourced to a third party licensed and/or registered to perform such functions (including those licensed in foreign countries). Key Takeaways The amended FSCMA and Enforcement Decree are expected to provide financial investment companies with greater degree of flexibility to design and implement their organizational structure to best serve their business and regulatory compliance objectives. The FSC has publicly announced that it anticipates that the amendments will enhance innovation in the financial industry leading to improved efficiency in the capital markets. At the same time, the FSC stated that it will monitor and enforce breaches of the information sharing and outsourcing regulations more vigorously by actively utilizing the tools at its disposal such as imposition of criminal penalties and fines. This expression of intent indicates the additional emphasis and focus on the individual financial investment company's responsibilities to implement effective internal control systems. The amended FSCMA and Enforcement Decree have been in effect from May 20, 2021. Accordingly, financial investment companies are advised to familiarize themselves and take steps to comply with their obligations thereunder, including implementing the required internal control standards on information barriers in compliance with the new principle-based framework and appointing personnel responsible for implementation of new information barriers. In this connection, the Korea Financial Investment Association has recently distributed best practice internal control standards that reflect the requirements set forth under the amended FSCMA and Enforcement Decree.2021.05.18
-
Newsletters VIEW MORENewslettersNational Assembly Passes Amendment to Fairness in Franchise Transactions Act On April 29, 2021, the National Assembly passed a proposed amendment to the Fairness in Franchise Transactions Act (the "FFTA") that will (i) require franchisors to have prior experience operating a directly-managed store, and (ii) reduce the scope of exemptions for small-scale franchisors. The proposed amendment, which was announced earlier this year by the Korea Fair Trade Commission (the "KFTC") as part of its enforcement plan for 2021, is expected to be promulgated into law following review of the presidential cabinet and take effect six months after promulgation. We summarize the key details of the proposed amendment below, and recommend companies with franchise networks in Korea to take note of the proposed changes and related policy developments in their business activities. 1. Requirement of prior experience operating a directly-managed store Currently, companies are allowed to indiscriminately solicit franchisees even if their franchise business model has not been verified as sustainable, and there has been criticism that this puts prospective franchisees at a higher risk when opening a store under a poorly managed franchise chain, and even at risk of losing their investment. To address such concerns, the amendment bill proposes to prohibit companies with less than one year of experience operating a directly-managed store from newly registering a disclosure statement as a franchisor, thus effectively preventing them from soliciting franchisees. However, this will not apply to franchisors that have already registered a disclosure statement with the KFTC. Furthermore, the proposed amendment provides exceptions for companies whose business model has been verified as sustainable (e.g., by earning a separate license or qualification), and the KFTC plans to further specify the exceptions to the requirement by amending the Enforcement Decree to the FFTA. The proposed amendment also requires companies to include their experience operating directly-managed stores (e.g., operation period and sales revenues) in their disclosure statements, and provide such information to prospective franchises at the recruitment stage. 2. Reduction in the scope of exemptions for small-scale franchisors As it is often the case that the smaller the franchisor, the more difficult it is to find readily available information on its franchise business in the market, and the more likely the franchisor will not have the means to return the franchise fee (i.e., upon termination of the franchise agreement), criticism has arisen that franchisees of small-scale franchisors are more vulnerable to harm. To address such concerns, the amendment bill proposes to reduce the scope of exemptions for small-scale franchisors, so that franchisors of all sizes are required to register disclosure statements, provide disclosure statements to prospective franchisees, and have franchisees pay franchise fees in the form of deposits at a designated deposit agency. [Korean version]2021.05.07
-
Newsletters VIEW MORENewslettersAmendment to the Labor Standards Act Regarding Workplace Harassment A new amendment to the Labor Standards Act (the “LSA”) will reinforce the employer’s obligations and sanctions against employers who breach their obligations regarding workplace harassment. The current LSA requires an employer who receives a report or becomes aware of harassment in the workplace to conduct an investigation to confirm the relevant facts without delay and, according to the results of the investigation (Article 76-3), take measures with respect to employees who are victims of harassment and harassers, but does not impose separate sanctions for failure to comply with the above obligations. However, the amended LSA now provides the following obligations and sanctions. When an employer receives a report or becomes aware of the occurrence of workplace harassment, the employer shall conduct an objective investigation regarding the employee concerned. Those who (i) investigate the occurrence of workplace harassment, (ii) report the details of the investigation, and (iii) participate in the investigation process shall not disclose any confidential information learned in the course of the investigation. If an employer or his/her relative engages in workplace harassment, a fine not exceeding KRW 10 million shall be imposed, and a fine not exceeding KRW 5 million shall be imposed for failure to comply with the obligations to take necessary measures such as (i) investigation of workplace harassment, (ii) protection of employees who are victims of harassment and disciplinary action against harassers, or (iii) disclosure of any confidential information learned during the investigation. The amended LSA will go into effect on October 14, 2021, six months after the promulgation. With the amendment of the LSA, it is likely that the labor authorities will show active interest in how businesses manage workplace harassment cases by conducting inspections. Therefore, we encourage companies to conduct an internal review of how workplace harassment claims are handled to ensure compliance with the obligation to take appropriate measures. Businesses should also ensure that claims and reports of workplace harassments are objectively investigated without undue delay and make best efforts to prevent, to the extent possible, future occurrences of workplace harassments. [Korean version]2021.04.27
-
Newsletters VIEW MORENewslettersKFTC Announces Amendments on Case Handling Procedure and Consent Decree Guidelines The Korea Fair Trade Commission (the "KFTC") issued a press release on April 5, 2021, announcing amendments to the Rules on Consent Decree Operation and Procedures (the "Consent Decree Guideline”) and Rules on the KFTC's Hearing Operation and Case Handling Procedure (the "Case Handling Guideline") (together, the "Guidelines"). The above Guidelines had been issued as a follow-up to ensure the seamless enforcement of the amended Monopoly Regulation and Fair Trade Law ("FTL") that was passed on May 19, 2020. The Guidelines will take effect on the same day as the amended FTL. The amendments to the Case Handling Guideline include (i) a deadline for completing KFTC-initiated cases; (ii) rights of respondents to demand access and copies to data not disclosed in the Examiner's Report; (iii) requirement to provide notice on the result of the KFTC's investigation to the respondent; and (iv) limitation on investigative activities during the hearing stage of the KFTC's investigation, as detailed in our previous newsletter. A summary of the amended Consent Decree Guideline is as follows: Designation of a trustee to monitor compliance with consent decree and explanation of the types of tasks that can be entrusted to the trustee The current Consent Decree Guideline does not contain any guideline for trustees, but the amended Consent Decree Guideline will require the preliminarily agreed consent decree proposal to include the name of a trustee. In addition, the amended Consent Decree Guideline will require the KFTC to notify the trustee of the approval of the consent decree and includes other provisions relating to the designation of a trustee and details of a trustee's monitoring activities. Authority to cancel or stop the trustee's unfair actions The amended Consent Decree Guideline will clarify that the KFTC has the authority to oversee and supervise the trustee's monitoring activities, and if a trustee's action is deemed illegal or unfair, the KFTC may cancel or stop the trustee's action. Provision of necessary materials to conduct monitoring activities and notification of violation of consent decree to the KFTC The amended Consent Decree Guideline will allow the KFTC to provide necessary materials and resources to the trustee to conduct its monitoring, while restricting the working-level trustee employees to only use the materials obtained from the KFTC for the monitoring purpose. In addition, the KFTC may file a criminal complaint against the trustee employee who uses such materials for purposes other than monitoring the compliance with the consent decree. The trustee will be required to report quarterly to the KFTC in writing on the compliance status, and if the respondent is not in compliance with the consent decree, the trustee must immediately notify the KFTC of the violation. The amended Consent Decree Guideline aims to lessen the burden on the KFTC by outsourcing the compliance monitoring activities to the Korea Fair Trade Mediation Agency and the Korea Consumer Agency and ensures a more effective monitoring of the consent decree compliance, which may take several years. However, additional details will be needed in actually conducting the monitoring activities, and thus, companies should continue to follow up on the actual monitoring processes to be adopted by the Korea Fair Trade Mediation Agency and the Korea Consumer Agency. [Korean version] .content_view .view_area ul li:before { top: 13px; }2021.04.13
김·장 홍보
-
93 Professionals Named National Leaders in WWL: Korea 2021
In the 2021 edition of Who’s Who Legal: Korea, 93 attorneys, patent attorneys and certified public accountants from Kim & Chang were named “National Leaders.”
VIEW MORE -
South Korea National Law Firm of the Year at Chambers Asia-Pacific Awards
Chambers and Partners recognized that Kim & Chang “stands out for its breadth and quality of coverage across the full legal spectrum.”
VIEW MORE -
Opening of Kim & Chang’s Singapore Office
With the opening of our Singapore office, we now take our successful track record to our clients on a wider regional platform.
VIEW MORE