South Korea’s financial authorities are significantly raising the level of sanctions against unfair trading practices. The plan is to expand principal confiscation and forfeiture provisions—currently applied only to market manipulation—to cover the use of material non-public information and fraudulent unfair trading, while also granting investigative officials the authority to request communications data to preemptively block the destruction of evidence.
FSC Chairman Lee Eok-won announced these measures to strengthen investigative and sanctioning powers during a meeting reviewing the one-year operational performance of the Joint Task Force to Eradicate Stock Manipulation, held at the Korea Exchange in Yeouido, Seoul, on the 8th. “By granting investigative officials the authority to request communications data, we will prevent the destruction of evidence and pursue crimes to the very end,” Chairman Lee stated. “We will also expand principal confiscation, currently applied only to market manipulation, to include the use of material non-public information and fraudulent unfair trading.”
During the meeting, the FSC explained its plan to introduce a Capital Markets Act amendment in the third quarter of this year, centered on establishing the authority to request communications verification data and expanding the scope of principal confiscation and forfeiture. The authorities also decided to review extending the payment suspension period for accounts involved in unfair trading and rationalizing the requirements and procedures for imposing penalty surcharges.
The Joint Task Force was launched on July 30 last year with 36 personnel (one team) from the FSC, the Financial Supervisory Service (FSS), and the Korea Exchange, and has since expanded to 90 personnel (two teams). Financial authorities plan to further expand the organization to approximately 100 personnel soon. By having personnel from the three agencies work in a single location and immediately divide roles upon detecting suspicious activity, the task force has built an organic response system that has reduced case processing times from the previous six months to roughly three months.
In its first year since launch, the Joint Task Force has uncovered more than 10 cases of unfair trading and referred or reported them to prosecutors. These include a long-term market manipulation case involving ultra-high-net-worth individuals known as “super-rich,” insider trading by a senior executive at a securities firm, and front-running by a journalist. Among these, penalty surcharges were imposed in two cases, including one involving the use of undisclosed information by an employee of a listed company and a broadcasting company employee. The task force is currently investigating multiple cases, including market manipulation and front-running, and is actively securing evidence through search and seizure operations for significant cases.
Chairman Lee Eok-won assessed the progress, stating, “By uncovering unfair trading by individuals who are expected to uphold high ethical standards, such as journalists and securities firm executives, we have instilled a sense of vigilance in the market that illegal activities will inevitably be detected.” He added, “We have established a collaborative system where the FSC, FSS, and Korea Exchange work together in one location, accelerating case processing and serving as a catalyst for the full-fledged establishment of the penalty surcharge system.”
However, limitations have also been exposed. In the long-term market manipulation case involving ultra-high-net-worth individuals, known as the task force’s first case, arrest warrants for all four suspects were recently dismissed by the court. This has led to criticism that, despite rigorous initial responses, the task force is facing difficulties in persuading the court.
To address these institutional shortcomings, the government has decided to significantly strengthen its AI-based market surveillance system. Plans include deploying a “Case Analysis AI Agent” to detect new types of crimes utilizing YouTube and social media and to conduct combined analysis with trading patterns, while also improving investigation completeness to enable early imposition of penalty surcharges.
Furthermore, for malicious and repeat offenders of unfair trading, the authorities plan to actively utilize administrative measures such as restricting financial investment product transactions and limiting executive appointments to swiftly exclude them from the capital markets. The task force will also strengthen the linkage and interoperability between its IT systems, upgrade forensic equipment, and reinforce the Korea Exchange’s market information and tip analysis functions.
Chairman Lee Eok-won emphasized, “We will not rest on the achievements of the past year but will respond even more forcefully under the principle of ‘swift detection, rigorous investigation, and zero-tolerance sanctions.'” He stressed, “Eradicating unfair trading in the capital markets is not just about punishing criminals; it is about safeguarding trust in South Korea’s capital markets.” He further urged, “The FSC, FSS, and Korea Exchange must cooperate as an even stronger unified team to realize ‘justice in the capital markets.'”