Government officials are expressing growing frustration over criticism at changes being made to securities regulations, which some foreigners say are contradictory to the country`s aim of attracting foreign capital.

The controversy was sparked by a series of reports published by The Financial Times that took issue with revisions to share acquisition rules and a proposal by a group of legislators to restrict the number of foreigners who may sit on the board of a domestic bank.

The British daily called the developments discriminatory against foreign investors, labeling them "economic nationalism" in an editorial.

The charges were made against the backdrop of an increasing foreign presence on the domestic stock market. Korea`s blue chip companies have also voiced fears about the possibility of foreign hostile takeovers, which some experts say are more an excuse to tighten their managerial grip and pressure the government for further deregulation.

Regardless, Korean policy setters and regulators argue that the rules in question are in place in other countries, including the United States, and in some countries are tougher.

At the center of the controversy is a toughened "5 percent rule" that require investors in listed companies to state the purpose of a stock acquisition of 5 percent or more. The British daily says the new regulation, aimed at determining whether an investor intends to intervene in the management of the target company, is simply a tighter control on foreign investors.

Korean officials note that the rules meet global standards and the system has been designed to closely resemble what is place in the United States, but is just simpler.

Japan also practices a similar 5 percent rule but does not strip investors of voting rights if they change their stated purpose of investment.

In Korea and the United States, investors will be deprived of voting rights for five days and 20 days, respectively, if they switch roles from simple investors and decide to meddle in a company`s management.

The Financial Times also took issue with a move by a group of legislators to restrict the number of foreigners allowed to sit on the boards of local banks. The government has made clear it is opposed to the move since it "could violate provisions of the World Trade Organization," and will not to revise the related law.

Korean officials have expressed anger at the tone of the British media, which has established it as an event that could take place. The Financial Supervisory Service said the British paper has accepted its demand to print a refutation in response to the April 4 Asian edition, which suggested that the European Union may seek WTO support to prevent the legislators` move.

Local officials and financial experts have further argued that many countries require board directors at domestic banks meet strict criteria. Cited examples include Canada, which stipulates that more than two-thirds of the board of local banks must be citizens living in the country. In Singapore, the majority of the board must be either a citizen or permanent resident.

In the United States, the law is tougher, with a director of a federal bank required to be an American citizen residing within 100 miles of the respective bank one year prior to his or her appointment.

Meanwhile, the Financial Supervisory Service said yesterday it would conduct an investigation into those companies who have not met the April 2 deadline to declare their purpose of investment.

Companies found to have intentionally not fulfilled the responsibility or have made a false report will be referred to the prosecution, the FSS said.

According to the Korean securities law, false reporting or intentional omission of information is subject to a prison term of less than one year or a fine of less than 1 million won.

The FSS said that 109 companies, 51 of them listed on the main stock exchange and the rest on the junior Kosdaq market, have failed to report to authorities since the new disclosure rule took effect March 29.

The financial watchdog said all companies are subject to submitting new reports except for those where major shareholders are the government, pension funds, the Korea Asset Management Corp. or Korea Deposit Insurance Corp. Also exempted are companies which do not have shareholders who hold 5 percent or more of stocks.

(mhkim@heraldm.com)





By Kim Min-hee