[Q&A] Establishing a 'One Team' for Stock Manipulation Investigation... Financial Services Commission Introduces Account Freezing Authority

[Image source=Yonhap News]

The Financial Services Commission (FSC) is introducing a system to freeze suspects' accounts during investigations of stock manipulation cases. With the introduction of the asset freeze system, the effectiveness of the stock manipulation penalty system, which will be announced for legislative notice this month, can also be strengthened. It is expected that swift administrative sanctions will become possible for the three major unfair trading practices.

Additionally, the response system to unfair trading such as stock manipulation will shift to a 'team play' approach. A permanent collaboration system will be established centered on the 'Emergency Investigation and Hearing Agencies Council' (JoSimHyeop), with information sharing among institutions.

On the morning of the 21st, the FSC announced the 'Improvement Plan for the Capital Market Unfair Trading Response System' at the Government Seoul Office, together with four institutions including the Seoul Southern District Prosecutors' Office, the Financial Supervisory Service (FSS), and the Korea Exchange.

Below is a Q&A with Kim Jeong-gak, Chairman of the Securities and Futures Commission.

- Please explain the asset freeze system in detail. Currently, account freezing requires court approval. Is it possible for the FSC to freeze accounts independently?

▲ We are still in consultation, so I cannot say definitively, but there was consensus that securing the authority for the FSC to freeze accounts is important. Asset freezing requires promptness to prevent concealment of criminal proceeds. However, it also interferes with citizens' property rights, so it must be exercised cautiously. The current plan is for the Chairman of the Securities and Futures Commission to freeze assets in financial company accounts in urgent cases. This cannot be done permanently. Procedures such as reporting to the Commission and extending the freeze if necessary are being considered. We are also considering whether a warrant is required for the asset freeze system. The warrant principle is an important rule under criminal law. Overseas cases vary by country regarding the need for a warrant.

- Was a reward paid to the whistleblower in the Ra Deok-yeon gate? I understand accomplices are excluded from reward eligibility.

▲ The Ra Deok-yeon gate is currently under investigation. Rewards are not paid for ongoing investigations. Therefore, no reward has been paid to the whistleblower yet. For reference, rewards paid from the FSC (government) budget will start next year.

- Please explain again the exceptions to reward payments and leniency for voluntary reporters. I understand the application differs for accomplices.

▲ (Park Jae-hoon, Head of Capital Market Investigation Division) According to relevant regulations, rewards are not paid if illegal acts are revealed in the case. It is correct that criminals are excluded from reward eligibility. However, accomplices can be eligible for leniency if they voluntarily report.

▲ (Kim Jeong-gak, Standing Commissioner) When operating rewards from the FSC budget, we plan to redesign the FSS reward system. The details will be announced at the end of the year. It is important how accomplices are viewed under the leniency system of the Fair Trade Act. If accomplices led part of the crime, there is no exception (no leniency). The enforcement decree of the amended Capital Market Act will be announced for legislative notice next week, incorporating voluntary reporting provisions.

- The legislative notice for the enforcement decree of the amended Capital Market Act, which includes the penalty system and criteria for calculating unjust profits, was canceled. If not announced before Chuseok, it cannot be implemented in January.

▲ We are finalizing with related agencies and plan to announce the legislative notice on Monday. There is no problem with the January 19 implementation next year.

- The reward discussion right after the mass limit-down incident was 4 billion KRW, but it was lowered to 3 billion KRW in the announcement. Why was the reward cap lowered to 3 billion KRW?

▲ There were various proposals during the ruling party-government consultation. The Fair Trade Commission currently uses rewards in its leniency system. The reward cap was set at 3 billion KRW, and we referenced that. 3 billion KRW is still a very large amount.

- Is the monthly 150,000 KRW 'investigation allowance' paid to Financial Supervisory Service investigators an individual payment or a team payment?

▲ The 150,000 KRW investigation activity allowance is paid to individuals. Although there are budgetary difficulties, it is important that this measure recognizes the significance of the investigation bureau staff.

- There is an evaluation that the recent announcement contains no new content. Most of it was discussed in the previous four-agency talks. There is no concrete detail; is there anything to watch carefully?

▲ We have supplemented and strengthened the existing announcements. From the media perspective, it may seem like already disclosed content. We respected the current major framework of authorities and prosecutors to create improvement plans. The keywords are cooperation, sharing, and team play. All agency heads agreed. It means maximum cooperation and information sharing to play as a team. While the new measures are important, they also show the authorities' determination not to remain passive regarding unfair trading offenders.

- I understand there was discussion about transferring seizure rights. It was omitted from the measures, but was it actually discussed?

▲ The core of this measure is 'team play.' The FSC Capital Market Investigation Unit holds seizure rights. Through cooperation, we will utilize seizure rights when necessary. Granting seizure rights directly to the FSS was not included in this measure.

- I heard there was a sense of competition between the FSC and FSS investigation teams. Is there no role division? The FSS has many investigators and a long history of capital market investigations. Why strengthen joint roles?

▲ Conflicts between institutions regarding unfair trading investigations have been minimized. There were no disagreements while creating the measures. I hope this measure is not viewed as a result of inter-agency conflict. Each institution has its strengths. The FSS Investigation Bureau lacks on-site investigation and seizure rights but is unrivaled in securing initial evidence. Their staff are excellent and hardworking. The Korea Exchange Market Surveillance Committee also excels in analyzing trading data and hearings. We arranged cooperation to leverage each institution's strengths.

- Are there plans to pursue telecommunications record acquisition measures as well?

▲ The JoSimHyeop discussed this, but it was considered necessary to be cautious about acquiring telecommunications records. Some countries overseas adopt telecommunications record acquisition, but in Korea, telecommunications records are obtained through the warrant principle. Among related agencies, the urgent system was the asset freeze.