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보고서
2024 Jan/15
Major Reforms in Unfair Trade Regulation and Future Challenges -Comparing the Korean, U.S., and Japanese systems- Research Papers 24-01 PDF
Hwang, Hyunyoung
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Park Jun sun
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Ko Il Hoon
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Summary
Unfair trading is a financial crime that causes financial damage to many investors and undermines confidence in our capital markets. In South Korea, the Financial Investment Services and Capital Markets Act regulates unfair trade, and efforts have been made to improve the system in response to increasingly sophisticated unfair trade practices. However, despite the steady efforts of supervisory authorities, unfair trade schemes continue to evolve, becoming increasingly organized and sophisticated. The number of illegal activities that are difficult to detect using existing methods is growing, and the difficulty of proving unfair trade has made it difficult to effectively prevent, detect, investigate, and enforce it.

To address these issues, a number of legal changes were made in 2023. First, the Financial Investment Services and Capital Markets Act was amended to create penalty surcharges for three types of unfair transactions, codify the method of calculating unjust enrichment, and introduce a system to reduce sanctions for self-reporters. In addition, on September 21, 2023, the Financial Services Commission, the Ministry of Justice, the Seoul Southern District Prosecutors' Office, the Financial Supervisory Service, and the Korea Exchange jointly announced a plan to improve overall market monitoring and investigation and the sanction system for unfair transactions in the capital market.

As various regulations on unfair trade are being introduced and newly discussed, it is necessary to exam how the system improvement plan can play a role in preventing unfair trade and protecting investors, as well as what needs to be improved. This report compares the cases in the United States, which has a well-developed capital market, and Japan, which has a similar legal system to Korea, to examine whether it is an appropriate way to quickly detect and punish unfair traders and protect investors who have been harmed by them.

First, the investigation system for unfair trading needs to be streamlined. Beyond collaboration and information sharing, it is important to resolve the issue of overlapping investigative and decision-making bodies by establishing a clear division of roles between agencies. In addition, investigative powers such as the right to inspect communications and the right to compulsory investigation should be strengthened to ensure prompt and efficient investigations. Second, with the introduction of the penalty surcharge system, it is necessary to design a system for rational operation. By establishing objective criteria to distinguish between criminal penalties and fines, taking into account the legal nature of the fines and their compatibility with other laws, it is necessary to achieve the purpose of introducing a fine system with prompt monetary sanctions.

Third, it is necessary to improve the efficiency of detecting unfair traders by encouraging the whistleblower program and the cooperation program. The whistleblower awards funded by penalty surcharges, a limit on rewards based on contributions, sanctions for false reports, and measures to protect public interest reporters should be specifically designed. In the case of the cooperation program, it is necessary to list the factors to be considered in determining the reduction in sanctions but to refine them by referring to the SEC rules, or to quantify the criteria for judging the cooperator based on the timing of the report, the specificity of the report, the degree of cooperation with the investigation, the statements of accomplices, the unfair gain of the cooperator, the preemptive provision of data, timeliness, and the status of the reporter. Finally, measures should be put in place to provide redress for ordinary investors. To this end, the Securities-related Class Action Act should be improved, and information, such as judgments should be provided to victims so that they can receive appropriate damages. Furthermore, in the case of unfair trade, as in the case of fraud, it is appropriate to make the recovery of victims’ damages (settlement) a special extenuating circumstances in sentencing to provide an incentive for perpetrators to compensate victims as a matter of criminal policy.

These comprehensive efforts to improve the system are expected to increase the credibility of our capital markets and contribute to the protection of investors.