Will Korea establish its own version of US SEC?

gettyimagesbank

Expectations are growing over whether Korea will be able to establish its own version of the U.S. Securities and Exchange Commission (SEC), a powerful securities exchange oversight body that guarantees fair trading and fraud prevention, market watchers said Sunday.

Fueling the momentum is President Lee Jae Myung’s campaign pledge to introduce a policy whereby first-time organizers of stock manipulation schemes will be permanently banned from market participation in a stern zero-tolerance crackdown to bolster healthy market dynamics.

This was part of capital market reform measures he said would advance “the era of KOSPI 5000,” coupled with reduced concerns over the “Korea discount,” a chronic undervaluation of Korea’s equity market.

Central to the establishment of the oversight body will be integration of functions spread across the Financial Services Commission (FSC), Financial Supervisory Service (FSS) and Korea Exchange (KRX), which has contributed to delays in investigations, reviews and penalties.

According to many who deal with the financial market, unfair trading investigation is inefficient and lacks cohesion.

The KRX reports suspicious activities to the FSC or the FSS. The FSC or FSS probe is then reviewed and referred to the Securities and Futures Commission to determine whether the case should be referred for prosecution or subject to other disciplinary measures.

Under the current system, up to a year is needed to lead to FSC sanctions. The process can take up to three years if court rulings need to be finalized.

The status quo is problematic, as highlighted by a Korea Capital Market Institute report, which said stages of investigations dragged on long enough to allow suspects to flee, leading to difficulties in timely and effective prosecution and penalties.

From 2016 to 2020, 55.8 percent of unfair trading cases resulted in no indictments after being referred for prosecution.

The report said Korea should establish a centralized investigative body similar to ones in the U.S. and Japan.

“Not only the functions of investigative organizations should be streamlined but their authority should be strengthened,” the report said.

The 1,400-strong U.S. SEC wields investigative powers where officials can subpoena witnesses, request documents and conduct searches, and freeze assets during investigations. Additionally, they can impose civil and administrative actions through court-issued orders, including business suspensions, return of illicit gains, fines and bans on official duties.