Strengthening the Fight Against Unfair Capital Market Transactions
On the first anniversary of the establishment of the Joint Response Unit for Eradicating Stock Price Manipulation, the government has announced a series of measures aimed at intensifying its response to unfair capital market transactions. These steps are designed to enhance the effectiveness of recovering unjust enrichment and to deter future misconduct.
The Financial Services Commission recently released the ‘Operational Achievements and Future Implementation Plans of the Joint Response Unit,’ outlining these new strategies. Based on the unit’s achievements over the past year, the commission is planning to expand its investigative powers and improve its AI-based market surveillance system.
Expanding Investigative Authority and Sanctions
One of the key initiatives involves expanding the authority to investigate and sanction unfair capital market transactions. The government plans to submit a revised version of the Capital Markets Act to the National Assembly during the third quarter of this year. This revision aims to broaden the scope of current regulations, which only apply to market manipulation, to include the use of undisclosed information and unfair transactions. The goal is to more effectively recover unjust enrichment and eliminate incentives for such crimes.
In addition, the government is working on enhancing the penalty system. Alongside streamlining the requirements and procedures for imposing penalties, it will consider extending the suspension period for accounts involved in unfair transactions beyond the current 6 months (which can be extended up to twice). This measure is intended to facilitate the recovery of unjust enrichment. Furthermore, the government will explore granting investigative authorities the right to request “communication verification data” to prevent the destruction of evidence and trace information flows.
Enhancing Surveillance with AI Technology
The government is also focusing on improving the unfair transaction surveillance system through the use of artificial intelligence (AI). Through the Korea Exchange’s AI surveillance system, it will detect unfair transactions by analyzing content from YouTube and social networking services (SNS) in conjunction with actual trading patterns. A new “Case Analysis AI Agent” will be introduced to provide analysis results based on AI detection conditions.
Additionally, the government plans to utilize administrative sanctions more actively. Measures such as restrictions on trading financial investment products and limitations on appointing executives will be used to swiftly remove malicious and habitual perpetrators of unfair transactions from the capital market.
Commitment to a Fairer Market
Chairperson Lee Eog-weon of the Financial Services Commission emphasized the government’s commitment to responding strongly to organized and sophisticated stock price manipulation crimes. He stated, “We will respond even more strongly to organized and sophisticated stock price manipulation crimes under the principles of ‘rapid detection, strict investigation, and no-tolerance sanctions.’ Through this, we will firmly establish in the market the principle that ‘stock price manipulation leads to ruin.’”
Growth of the Joint Response Unit
The Joint Response Unit, launched in July of last year, brings together the Financial Services Commission, Financial Supervisory Service, and Korea Exchange to conduct rapid deliberations, investigations, and joint investigations in a single space. Initially comprising 36 people, the workforce expanded to 90 people in the first half of this year, with plans to increase it to a scale of 100 people.
Over the past year, the Joint Response Unit has detected around 10 major cases of unfair transactions, including long-term market manipulation by wealthy individuals, insider trading by high-ranking executives of securities firms, and the misuse of undisclosed information by disclosure officers of listed companies. These cases have been reported or referred to prosecutors for further action.
Additional Information
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