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The MSIT Releases Drafts of Notifications and Guidelines for the AI Basic Act On September 8, 2025, the Ministry of Science and ICT (the “MSIT”) released its draft Enforcement Decree (“Draft Enforcement Decree”) of the Framework Act on the Development of Artificial Intelligence and the Establishment of Foundation for Reliability (the “AI Basic Act” or “the Act”), and on September 17, 2025, the relevant drafts of Notifications and Guidelines of the AI Basic Act and the Draft Enforcement Decree. These Notifications and Guidelines provide detailed standards and interpretive guidance for the AI Basic Act and the Draft Enforcement Decree. Business operators who are currently engaged or considering engaging in AI-related businesses and services should carefully review and analyze their potential impact. The MSIT announced that it plans to (i) hold stakeholder meetings in September to gather opinions on the Draft Enforcement Decree, draft Notifications, and draft Guidelines, (ii) proceed with administrative legislative procedures, such as pre-announcement of subordinate regulations beginning in October, and (iii) finalize and enact the Draft Enforcement Decree, and publish the completed Guidelines by the end of the year, after reflecting the opinions collected during the public consultation period. Please refer to the attached file for the key details and issues set out in the seven draft Notifications and Guidelines. [Korean Version]
2025.09.26

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Types of AI Washing and Regulatory Trends (Part 1) Have you heard of the term “AI washing”? In advertisements for products ranging from smartphones to even financial investment products, you may have come across statements highlighting the use of AI. While there is no problem with providing accurate information regarding the role of AI in products or services, exaggerating or falsely promoting the use of AI when AI is either not used or only minimally relevant to the core functions of the products or services may raise concerns of “AI washing.” With the rising social and industrial significance of AI, the expression “AI” has become an effective marketing tool for capturing the attention of consumers and investors. This has brought about a growing number of cases in which companies use false or exaggerated AI-related claims to market their products or services. Such practice undermines the trust of consumers and investors and impedes the healthy development of the market. As the concept of AI is broad and ambiguous, it poses challenges in terms of regulatory compliance ? it is difficult to establish clear criteria for identifying AI washing in marketing claims, which in turn may make it challenging for companies to identify and eliminate marketing elements that may expose them to potential AI washing allegations. In this newsletter series, we will provide an overview of regulatory trends related to AI washing, notable cases from jurisdictions outside of Korea, and key points that companies should be aware of in preventing AI washing-related issues. In this first newsletter, we explain the key types of AI washing and the regulatory trends in Korea and other major jurisdictions. (i) Types of AI Washing and Regulatory Trends (ii) Domestic and International Cases Related to AI Washing (iii) The Korea Fair Trade Commission’s Market Survey and Guidelines on AI Washing (iv) AI Washing Compliance 1. Different Types of AI Washing The types of AI washing that we often see include (i) misuse of technical terms, (ii) exaggeration of the scope of use of AI technology, and (iii) failure to substantiate the use of AI. The detailed types are as follows: Key Types Contents Misuse of Technical Terms Exaggerating or using unnecessary technical terms such as “AI,” “machine learning,” “deep learning” and “generative AI” to mislead consumers to believe that such technologies were used. ? Example: Presenting the use of a simple data analysis tool as an “AI-powered predictive model.” Limited Use of AI Technology Being Presented as Wider Use by the Entire Company Promoting as if AI is widely utilized across the entire company, when in reality it is used only to a limited extent in a certain project or by a certain team within the company. ? Example: Promoting a shoe factory as an “AI company” even though its use of AI is limited to issuing product quotations. Use of Irrelevant AI Technology Promoting products or services as AI-based despite the use of ancillary technologies that have little to no relevance to their core functions. ? Example: Advertising a massage chair with a voice recognition function as an “AI massage chair.” Use of Another’s Technology as if It Is the Company’s Own Using another company’s AI solution for a product and promoting the product as if it uses the company’s own technology. ? Example: A company integrating Chat GPT functions into its product and promoting it as an AI product solely developed by the company. Failure to Disclose Information Making vague claims such as “systems powered by AI technology” without specifying the technology used, making it difficult to verify the use of AI. ? Example: Advertising an “AI big data analytics investment program” without disclosing relevant AI algorithms or data. Unsubstantiated Claims of Innovation or Performance Failing to present objective data to support claims of innovation or other performance purportedly achieved using AI technology. ? Example: Claiming to have predicted a sales increase using AI without presenting specific data or cases. 2. Laws and Regulations on AI Washing in Korea and Other Jurisdictions In Korea, false or exaggerated advertisements using AI washing could potentially be regulated as “false, exaggerated, or deceptive labeling and advertising” under Article 3 of the Act on Fair Labeling and Advertising or as “misleading consumers and transacting through deceptive means” under Article 21(1)(1) of the Act on the Consumer Protection in Electronic Commerce. To date, there has not been an “AI washing” case in Korea that involved a regulatory authority imposing sanctions against relevant conduct. However, as consumer harm from AI washing continues to rise, the risk of enforcement actions by regulatory authorities such as the Korea Fair Trade Commission (the “KFTC”) could increase. AI washing has already come under the focus of the KFTC. In its 2025 Enforcement Plan (dated January 7, 2025), the KFTC announced that it would monitor and conduct market surveys on AI washing. Likewise, legislative measures and enforcement actions aimed at addressing AI use and AI washing are gaining momentum in other major jurisdictions. In the US, regulatory authorities have increasingly targeted false and exaggerated AI-related claims. In February 2023, the US Federal Trade Commission (the “US FTC”) announced plans to take strict measures against false and exaggerated advertising that use AI-related claims. In March 2024, Gary Gensler, Chair of the US Securities and Exchange Commission (the “US SEC”), cautioned companies about AI washing, emphasizing the importance of eliminating deceptive AI-related claims. Since then, both the US FTC and the US SEC have taken enforcement actions, including imposing fines and sanctions on companies for making false and misleading statements about their alleged use of AI. In the EU, the AI Act, the world’s first comprehensive legal framework on AI usage, went into effect on August 1, 2024. In particular, Article 5 of the AI Act sets out certain types of “prohibited AI practices” such as using AI systems that deploy “subliminal techniques beyond a person’s consciousness or purposefully manipulative or deceptive techniques with the objective, or the effect of materially distorting the behaviour of a person or a group of persons by appreciably impairing their ability to make an informed decision.” On February 24, 2025, the European Commission issued draft guidelines on prohibited AI practices, clarifying that such techniques may involve presenting false or misleading information with the objective or the effect of deceiving individuals. Although the AI Act regulates AI use in general, Article 5 may represent an important step toward promoting greater transparency in how companies advertise products or services that use AI. Considering these regulatory trends relating to the use of AI and AI washing, it would be advisable for companies to set up internal protocols for gathering and keeping detailed records of objective evidence that could corroborate all marketing elements that refer to the use of AI in their products or services, and identifying and eliminating elements that have the potential to mislead or harm consumers. Given the evolving regulatory landscape, it would also be advisable to continue monitoring regulatory developments related to AI washing. [Korean Version]
2025.08.22

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PIPC’s Decision to Recognize Equivalence with the EU On September 16, 2025, the Personal Information Protection Commission (“PIPC”) announced its recognition of equivalence for the European Union (“EU”). The “recognition of equivalence” system enables cross-border transfers of personal information to designated countries or international organizations without additional procedures if the PIPC determines that their data protection standards are substantially equivalent to those of Korea. It is essentially the Korean equivalent of the EU’s adequacy decision. While the overseas transfer of personal information is typically subject to the data subject’s consent, the March 2023 amendment to the Personal Information Protection Act (“PIPA”) introduced new grounds for allowing such transfers without the data subject’s consent, one of which is the “recognition of equivalence” by the PIPC. 1. Progress In December 2021, the EU issued an adequacy decision to Korea, finding Korea’s personal information protection regime equivalent to that of the EU. As a result, personal data of EU citizens can be transferred to Korea without further requirements. However, the EU’s decision was unilateral, enabling transfers only from the EU to Korea. To facilitate transfers in the opposite direction (i.e., Korea to the EU), the PIPC pursued mutual recognition of equivalence. The March 2023 PIPA amendment established a legal basis for equivalence recognition (Article 28-8, Paragraph (1), Item 5). Subsequent steps included the development of a promotion plan for equivalence with the EU (February 2024) and policy discussions with the European Commission at the Global Privacy Assembly (November 2024). On November 19, 2024, the expert committee on overseas transfers concluded that the EU’s data protection standards matched those of Korea. After inter-ministerial consultations and a thorough review, the PIPC formally resolved to recognize EU equivalence in its plenary meeting on September 3, 2025. 2. Implications and Expected Effects With this decision, Korea now mirrors the EU’s adequacy decision by permitting personal data transfers from Korea to the EU without requiring prior consent from the data subjects. This is expected to greatly facilitate data flows between Korea and the EU. However, organizations must still comply with the relevant PIPA provisions, including requirements for providing personal information to third parties and the protection of data subjects’ rights. Adequate safeguards must be implemented to ensure the security of data transferred overseas and to manage grievances and resolve any disputes arising from personal information infringements. This is the first instance in which Korea has determined that another jurisdiction’s data protection is substantially equivalent to its own. The decision may set a precedent for future recognition of equivalence with countries outside the EU. [Korean Version]
2025.09.17

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Latest Trends in Amendments to FSCMA Concerning Funds Recently, driven by the new government’s policy direction and concerns regarding the deterioration of the financial soundness of companies invested in by private funds, numerous amendments to the Financial Investment Services and Capital Markets Act (“FSCMA”) have been proposed and enacted. As a result, significant changes to regulations related to collective investment schemes (“funds”) are anticipated. Please refer to the following for further details. 1. Passage of FSCMA Amendment Introducing BDCs As part of its growth strategy, the new government has sought to expand the venture investment market by introducing Business Development Companies (“BDCs”). On July 21, 2025, a subcommittee of the National Policy Committee of the National Assembly reviewed and integrated the proposed amendments to the FSCMA submitted by the government, as well as separate amendments led by National Assembly members Heon-Seung Lee and Seung-Won Kim, and prepared a consolidated proposal. This proposal was approved by the National Policy Committee on July 30, 2025, and subsequently passed in the National Assembly on August 27, 2025. The approved amendment will be promulgated by the government and is scheduled to take effect approximately six months later, in March 2026. Key points of the amendment include the following. Legal Basis and Requirements for BDCs (FSCMA Amendment Articles 9(30), 9(31), 229(6), and 229-2) BDCs are newly introduced public funds that must diversify investments with more than 50% (and exceeding a certain ratio) of their total assets in high-potential venture companies (“main investment target companies”). BDCs must be non-redeemable, with a term of at least five years, and, in principle, must be listed on the stock exchange within 90 days of establishment. They must also require a certain minimum subscription amount—set at no more than KRW 50 billion. The Financial Services Commission (“FSC”) is considering stipulating in the Enforcement Decree of the FSCMA that (i) at least 60% of assets must be invested in main investment target companies, (ii) such main investment target companies include unlisted companies (including venture companies), KOSDAQ-listed companies, venture investment associations, new technology investment associations, and private funds specializing in startups and ventures, and (iii) the minimum subscription amount is set at KRW 30 billion or more. Licensing Requirements for BDC Managers (FSCMA Amendment Article 12(2)6) Entities intending to establish a BDC must obtain a license for operating such companies. Qualification requirements are similar to those for financial investment businesses. However, in order to encourage participation by a wide range of management entities, the requirements for large shareholders are relaxed—specifically, the same requirements that apply to add-on licenses for financial investment business operations will apply in this context. The FSC has stated that it will consider allowing a wide range of management entities, including venture capital firms, in addition to existing public fund managers, at the licensing stage. However, securities companies will be excluded due to potential conflicts of interest between proprietary and customer assets. BDC Operating Regulations (FSCMA Amendment Articles 81(1), 81(5), and 81(6)) When BDCs invest in main investment target companies, separate asset management regulations apply, rather than the standard regulations for public funds. BDCs may invest up to 10% of their assets in stocks and 10% in non-stock securities (plus loans) of any single company, and up to 50% of the total shares issued by any one company. Loans to main investment target companies are allowed up to a certain percentage, provided they do not exceed 50% of the total BDC investment in such companies, and at least 10% of the BDC’s total assets must be held in safe assets such as government bonds or deposits. The FSC is considering capping loans to main investment target companies at 40% of the total BDC investment in such companies in the Enforcement Decree. Enhanced Investor Protections (FSCMA Amendment Article 229-2, Etc.) In addition to protections applicable to public funds, BDCs will be subject to additional investor protection measures—reflecting the unique nature of their investment assets. These include mandatory minimum holdings (i.e., seeding) by the BDC manager, quarterly fair value assessments, pre-evaluation of the growth potential of main investment target companies by external experts, and mandatory disclosure of material business matters. The FSC is considering requiring BDC managers to maintain a minimum holding ratio of 5% and recognizing bond evaluators, accounting firms, credit rating agencies, appraisal firms, technology credit bureaus, financial institutions, public agencies, and the Korea Exchange as external experts. With this amendment, expectations are high for the activation of venture capital supply to innovative companies. The FSC has announced plans to promptly revise the Enforcement Decree, including licensing standards, to ensure a smooth implementation, and to discuss tax incentives with relevant authorities. As the Enforcement Decree will flesh out more detailed rules on BDC establishment and management, those considering BDC formation should monitor developments closely and actively communicate opinions to the FSC during the legislative process. 2. Proposed Amendments to FSCMA on Private Funds Recently, a series of amendments have been proposed to strengthen regulations on private funds following concerns about a case in which private funds used leveraged buyouts to acquire management rights of a target company that subsequently entered insolvency proceedings. Key features of the amendments include the following. Strengthened Disclosure Obligations: Obligations to prepare and provide quarterly asset management reports, submit quarterly business reports, and have fund assets audited—previously only required for public funds—will now also apply to private funds. Increased Operational Regulation: The leverage cap will be lowered from 400% to 200%. When investing for management participation, private funds must hold their equity stake for a certain period. When deciding on asset outflows from a target company, voting rights may be restricted for a certain period. New obligations will require public disclosure of the fund’s financial status and any fees received by the asset manager. Enhanced Internal Controls: Private funds will be required to establish systems to prevent conflicts of interest in transactions with target companies, and will have to report certain large internal transactions to the FSC. Specifically, institutional private funds will be required to report leveraged buyouts, asset disposals, dividends, and conflict-of-interest transactions at target companies to both limited partners and the FSC. In addition, the FSC will be granted powers to order corrective measures and dissolution. These amendments are currently pending in the National Policy Committee. With the new government and financial regulators showing significant interest in reforming private fund regulations, and considering that parts of these amendments may restrict fund operations, it is crucial to monitor legislative developments closely and actively engage in related public discussions. [Korean Version]
2025.09.10

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“Yellow Envelope Act” Passes National Assembly Plenary Session On August 24, 2025, the National Assembly held a plenary session and passed the amendment to the Trade Union and Labor Relations Adjustment Act (“TULRAA”), commonly known as the “Yellow Envelope Act.” Of the 186 members present, 183 members voted in favor of the amendment while three members opposed (note: the opposition conservative party boycotted the vote). The amendment will now transfer over to the State Council meeting for review. If there is no request for reconsideration by the President, it will be promulgated and is expected to take effect six months from the date of promulgation. 1. Key Content and Practical Considerations The Yellow Envelope Act encompasses major amendments, such as the (i) expansion of the scope of an “employer,” (ii) expansion of the scope of “union membership,” (iii) expansion of the scope of industrial disputes, and (iv) limitation on damages claims (for a more detailed overview of the key contents of the Yellow Envelope Act, please refer to our previous newsletter, Link). Although the Ministry of Employment and Labor is expected to issue interpretative guidelines in due course, the timing of such release remains uncertain. Accordingly, rather than waiting for such guidelines, businesses should take proactive steps from now on to prepare for the substantial impact the Yellow Envelope Act is set to have on existing labor-management relations starting in the first half of next year. One of the most consequential changes is the expansion of the concept of an “employer,” which will include any entity that exerts “substantial and specific control” over the working conditions of the workers. This will create significant uncertainty, as there is no established legal standard for determining what level of control would constitute “substantial control.” As a result, businesses with complex supply chains or corporate structures will now face a myriad of critical questions including the following: “At what point is a company legally obligated to negotiate with its subsidiary’s union?” “When must a prime contractor engage with its subcontractor’s striking workers?” “What is the extent of the prohibition on strike replacement when the subcontractor’s workers go on strike?” This ambiguity may also extend to parent-subsidiary relationships, or beyond typical contractor relationships, potentially affecting business models that engage freelance workers. 2. Strategic Response Given the structural shifts this amendment will bring, a “wait-and-see” approach is not advisable. While government agencies are expected to issue interpretive guidelines in the near future, businesses should act now to assess their risk exposure by analyzing legal precedents from courts and Labor Relations Commission rulings where the “substantial control” test was a factor. Such analyses, when paired with a thorough internal review of one’s business operations, subcontractor agreements, and parent-subsidiary governance, will enable the development of a tailored strategy to mitigate potential risks and exposure and prepare for Korea’s new labor relations landscape. [Korean Version]
2025.08.25

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Ranked in the World’s Top 100 Law Firms for the 12th Consecutive Year

For the 12th consecutive year, Kim & Chang was ranked among the world’s top 100 law firms in “The Global 200” rankings published by The American Lawyer and Law.com International.
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Kim & Chang Ranked “Tier 1” in All Eight Practice Areas

Kim & Chang once again received “Tier 1” (top-tier) rankings in all areas surveyed for Korea in the 2025 edition of IFLR1000. Additionally, 56 of our attorneys were recognized in their respective practice areas.
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147 Professionals “Recommended”

In the 2025 edition of Lexology Index: South Korea (formerly, WWL: Korea), 147 attorneys, patent attorneys and certified public accountants from Kim & Chang across 22 fields were recognized for their expertise in their respective fields.
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