FSS to beef up scrutiny of listed companies' new business plans

Financial Supervisory Service (FSS) Governor Lee Bok-hyun delivers a congratulatory message at the 2023 XBRL Korea Conference in Seoul on June 1. Newsis

The Financial Supervisory Service (FSS) has vowed to take stern measures against listed companies that do not follow through on their publicly announced business plans. The financial watchdog called it an illegal act impairing the trust of the domestic capital market.

According to the FSS on Sunday, 129 companies, or 55 percent, of the 233 listed companies that had announced plans to expand into seven designated sectors during the first half of this year, have not taken any actions so far to realize their announced business plans.

The seven designated sectors are perceived as popular growth-potential fields, such as secondary batteries, artificial intelligence (AI), robotics and the metaverse.

The financial regulator said it detected a pattern of stock manipulation whereby listed companies announce new business plans without intending to follow through on such plans.

As a result, the FSS is currently investigating cases where major shareholders of listed companies announced new business ventures, causing a surge in stock prices, and then unloaded significant amounts of the shares to pocket the profits.

In addition, the regulatory authority is scrutinizing 129 listed companies that failed to take substantive business activities in relation to publicly announced business plans to look for involvement in unfair trading practices and to check on accounting practices.

The FSS revealed that 25 percent of the 129 companies that have not implemented their announced new business plans turned out to have a history of disclosure violations, such as a failure to submit regular reports. Sixy-five percent of the firms also exhibited inadequate disclosures in their reports, showing a low level of compliance with disclosure requirements overall.

Furthermore, the FSS pointed out that many of the 129 listed firms have shown operating losses and capital erosion over the past several years, exhibiting low financial soundness and management instability.

"There's high concern that some of these listed companies may raise capital under the guise of new business initiatives while funneling them for other purposes or for illegal personal gains," an official from the FSS said, vowing to sternly respond to the "illegal activities that seriously damage the credibility of the capital market."

The FSS plans to continue scrutinizing companies that are frequently involved in inappropriate accounting practices, suspicion of unfair trading, repeated disclosure violations or fundraising without clear business plans.