UK and Others "Public Disclosure of Unfair Trade Offenders' Real Names... Providing Blacklists of Companies and Individuals" [War on Stock Manipulation]

②-⑹ Korea restricts personal information disclosure due to privacy concerns
Investor protection focus... Watchlist disclosure
Transaction restriction system effective in preventing recidivism
Related bills pending in Korean National Assembly

Major Countries Disclosing Real Names of Unfair Trade Offenders

Major countries overseas, including the United Kingdom, protect investors by disclosing sanction records of unfair trade practices that include the real names of offenders. In contrast, the Financial Services Commission of Korea is required by operational rules to disclose minutes but only releases limited information citing privacy concerns.

On the 19th, Soomin Jung, a research fellow at the Korea Capital Market Institute, pointed out, "To suppress unfair trade practices and prevent recidivism, it is necessary to actively disclose information about unfair trade records and offenders, while also introducing measures such as disclosure by court order, limited scope or duration of disclosure, and information protection measures." She added, "The principle should be real name disclosure, but it is also worth considering anonymization in necessary cases by referring to legislative examples from the UK, Germany, and Hong Kong."

The UK provides an opportunity to explain reasons why real name disclosure should not be made and does not disclose if clear and persuasive evidence is presented. Hong Kong allows individuals to request anonymization if they complete specific requirements related to preventing recidivism of crimes.

Research fellow Soomin Jung said, "Looking at the Financial Services Commission minutes, companies that committed unfair trade are also anonymized rather than disclosed by real name. If real name disclosure is difficult, detailed disclosure of the type of conduct for which sanctions were imposed can prevent fraud damage from similar acts," adding, "Specifying the type of conduct does not raise privacy concerns, so it is not a difficult part to implement."

As a measure to protect investors, the UK prepares and discloses a warning list. When the Financial Conduct Authority (FCA) publishes a list of companies and individuals not licensed to operate in the UK, investors can check whether a particular entity is authorized by referring to this list. Canada also discloses a list of individuals or companies that may pose risks to investors on the Canadian Securities Administrators (CSA) website. According to the CSA’s 2021?2022 annual report, 236 individuals and companies were designated as risky and disclosed during that period.

Preventing Recidivism through Trading Restriction Systems

Major advanced countries also implement trading restriction systems to suppress recidivism of unfair trade. Research fellow Jung emphasized, "Trading restrictions in the capital market for unfair trade offenders limit their opportunities to gain capital income in the future, reducing incentives for such conduct," adding, "By making access to the capital market difficult, it prevents recidivism and protects other investors."

For example, the UK FCA uses prohibition orders as a sanction for comprehensive securities law violations. Individuals subject to prohibition orders are banned from buying and selling stocks, options, futures, pension products, and more. Canada issues trading restriction orders if deemed in the public interest, and the European Union (EU) member states temporarily restrict trading using their own accounts for market abuse in capital markets. The United States restricts trading in penny stocks when unfair practices involving such stocks occur. Hong Kong can impose trading restrictions for up to an indefinite period, with the longest actual restriction being five years.

In contrast, Korea has no trading restriction measures, raising concerns about recidivism. Although bills similar to those in major overseas countries were proposed last year, they remain pending in the National Assembly. Research fellow Jung advised, "To avoid controversy over property rights infringement, the law should specifically include provisions protecting the rights of those subject to trading restrictions and those scheduled for such measures."

Editor's NoteIt has been nearly one year (April 24, 2023) since the 'Ra Deok-yeon Gate,' the largest stock manipulation crime to date (total illicit gains of 730.5 billion KRW), occurred, yet the victims’ nightmare has not ended. There are no effective victim remedies in the Korean capital market. Litigation is the only option, but the burden of costs and difficulty proving damages deter victims from even attempting it. The amendment to the Capital Markets Act, which supplemented the limitations of criminal punishment and introduced effective monetary sanctions following the 'Ra Deok-yeon Gate,' is significant. However, to eradicate the continuously increasing securities crimes in various forms, it is necessary to establish a system that can efficiently detect and investigate these crimes and to implement additional institutional improvements for swift and strict sanctions. The Asia Economy Securities Capital Market Department’s special investigative team examines advanced overseas capital market systems and reviews the challenges and directions for our market to suppress securities crimes. Since intelligent and organized criminal acts occur, we also seek effective remedies for investor damages.

We plan to intensively report from various perspectives on all kinds of unfair trades such as insider trading, fraudulent trading, market manipulation, and reporting violations. We will strive to prepare comprehensive countermeasures to eradicate capital market crimes. Please send tips to lsa@asiae.co.kr. We will investigate thoroughly and report.

▲Team Leader Seon-ae Lee, Manager △Min-young Kim, Yoon-joo Hwang, Min-young Cha, Dae-hyun Kim, Reporters