Financial watchdog vows stronger oversight, reforms to restore trust in Korea’s capital market

Hahm Yong-il, senior deputy governor of the Financial Supervisory Service (FSS), speaks during a media briefing at FSS headquarters in Seoul, April 1. Yonhap

The Financial Supervisory Service (FSS) will strengthen oversight of controlling shareholders, enhance crackdowns on unfair trading practices and improve the market environment for foreign investors in an effort to accelerate structural reforms aimed at restoring trust in Korea’s capital markets, it said Wednesday.

The financial watchdog also plans to institutionalize the intensive review system for rights offerings and regular audits of proxy voting practices while expanding the electronic monitoring of short selling and on-site inspections of private equity funds to improve both market transparency and investor protection.

Hahm Yong-il, senior deputy governor of the FSS, emphasized during a media briefing that consistency and predictability are key, signaling that his agency will pursue long-term reforms rather than one-off measures.

The media briefing was widely viewed as an opportunity to highlight the achievements of FSS Gov. Lee Bok-hyun, who will complete his term on June 5, and to express the organization’s commitment to maintaining its current policy direction and continuing to develop improvement measures for the capital markets even after the governor steps down.

Lee, a former prosecutor and close aide to ousted President Yoon Suk Yeol, was appointed chief of the FSS in June 2022 under the Yoon administration.

Korea is set to hold a presidential election on June 3 to choose a new leader.

"Enhancing corporate value is the path we must take," Hahm said during the briefing. "This is not a political issue between parties but a fundamental issue for the capital market. It must be pursued with consistency."

As for rights offerings, the FSS criticized companies for failing to transparently disclose the background of the capital increase decision, the discussion process and the expected effects, noting that they are making insufficient efforts to communicate with shareholders.

To balance corporate fundraising and investor protection, the watchdog vowed to consistently continue reviewing rights offerings subject to intensive examination. After a certain period of operation, it will evaluate the outcomes of the intensive review system and make improvements accordingly.

Korea Zinc's annual shareholders' meeting takes place at the Mondrian Seoul Itaewon hotel, March 28. Courtesy of Korea Zinc

The FSS has also maintained a firm stance against unfair trading by focusing its resources on prompt responses to serious cases that threaten market stability and investor interests. In incidents with significant social repercussions and involving multiple stakeholders, the agency has consolidated its authority to deliver a comprehensive response.

"We plan to continuously enhance our investigative capabilities, including developing investigative techniques using artificial intelligence and other technologies," Hahm said.

Regarding short selling, the FSS reported that the newly implemented computerized system for monitoring for signs of naked short selling has been running smoothly without any problems.

It promised to take firm action against any illegal short selling practices uncovered and to continue engaging with foreign investors.

In response to the controversy surrounding private equity funds sparked by MBK Partners' March 4 filing for Homeplus' corporate rehabilitation, the FSS vowed to enhance oversight and inspections.

The FSS suspected MBK, the largest shareholder of Homeplus, of concealing its corporate rehabilitation plan while continuing to issue short-term bonds, and referred the case promptly to prosecutors.

"To improve the public image of private equity funds and support their essential functions — such as restructuring and providing venture capital — the FSS intends to broaden its inspection efforts based on factors like investment size, compliance with regulations and fulfillment of social responsibilities," Hahm said. "Working together with the Financial Services Commission, the FSS will also evaluate and enhance the regulatory framework by incorporating feedback from both academia and industry."