Current three-agency system blamed for slow, ineffective enforcement on unfair trades
While South Korea considers an overhaul of its financial regulatory framework, discussions are underway on establishing a consolidated agency to handle unfair financial trading, similar to the US Securities and Exchange Commission model.
The presidential state affairs committee, tasked with outlining the Lee Jae Myung administration’s key policy agenda, has stressed the need to integrate existing supervisory bodies to tighten control on unfair trading practices.
"The investigation of unfair trading practices is currently fragmented across the Financial Services Commission, the Financial Supervisory Service and the Korea Exchange, with much of the work overlapping,” the committee pointed out through a publication earlier this month.
“We must push for institutional reforms to enable swift and effective investigation, screening and sanctions on unfair practices in the capital market, including the integration of related bodies."
While the bourse operator KRX is responsible for detecting suspicious trades and conducting preliminary reviews, the FSC holds compulsory investigative powers, including account tracing, witness summons, on-site inspections and search and seizure. The FSS holds limited investigative rights.
The fragmentation leads to procedural delays. It takes about a year from the start of an investigation for authorities to impose sanctions against unfair trading, and up to three years to obtain a court ruling.
Sometimes, it even leads to loopholes. For instance, illegal naked short selling by HSBC occurred in 2021. The local finance authorities were able to announce the results of the probe in September 2023. In the first verdict, reached in February 2025, the court, though acknowledging HSBC’s violation of the short-selling rules, acquitted the bank, citing insufficient investigation.
According to the FSC, between 2016 and 2020, 55.8 percent of the cases on unfair trading practices referred to the prosecution were concluded without indictment.
In response, the state affairs committee is considering the launch of a unified investigative body, similar to the US Securities and Exchange Commission model, integrating the KRX, FSC, and the FSS' units responsible for probing unfair trading.
Holding both investigative and prosecutorial powers, the SEC has a "one-stop system" to swiftly respond to misconduct such as stock manipulation and insider trading.
Japan's Securities and Exchange Surveillance Commission under the Financial Services Agency is an entity with centralized investigative functions as well.
“Considering finance will be the key driver behind Korea’s growth, now is the time to launch a regulatory body that can exercise power with full force,” Lee Hyo-seob, a senior research fellow at Korea Capital Market Institute, said.
"In an era of big blur, financial activities are becoming increasingly complex and overlapping. The currently fragmented system struggles to respond swiftly to related risks."
Since his inauguration, President Lee Jae Myung has stressed rooting out unfair trading practices in the capital market.
“We must make it clear that anyone who manipulates the stock market will be completely ruined,” Lee said, visiting the KRX headquarters in Yeouido, western Seoul, on June 11, just days after taking office.
Yet, financial authorities remain wary of the change as existing agencies would have to be split up under the overhaul.
During a policy briefing held on Tuesday, the FSS primarily explained ways to enhance the capabilities of the existing organization, without mentioning reshuffling plans.
"The briefing was not about an organizational overhaul. The discussion mainly focused on further enhancing consumer protection,” FSS Senior Deputy Gov. Lee Se-hoon told the press following the briefing.
silverstar@heraldcorp.com
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