Administrative

Capital Markets Act Lawyer

Capital Markets Act Lawyer | Advisory on disclosure, trading conduct, and regulatory investigations

Summary

The Capital Markets Act (자본시장법, formally the Financial Investment Services and Capital Markets Act) governs securities issuance, disclosure, market conduct, and the licensing of financial investment businesses in Korea. Exposure arises in several distinct ways: failing to file or amend a disclosure document, trading while in possession of material non-public information, engaging in conduct that artificially affects price or trading volume, or breaching conduct-of-business rules as a licensed intermediary. Because enforcement can involve both administrative sanctions from the Financial Services Commission (FSC) and criminal referral, an early legal read of the facts matters before responding to a regulator's request.

Administrative · Financial Regulation Governing law: Capital Markets Act (자본시장법)

Capital Markets Act | Disclosure and reporting obligations

Issuers, major shareholders, and certain investors carry ongoing filing duties whose breach can trigger corrective orders, fines, or criminal liability depending on intent and materiality.

Securities registration and prospectus duties

A public offering or sale of securities generally requires a registration statement to be filed and become effective before the offering proceeds, and investors must be given a prospectus (자본시장법 제119조, 제123조). Structuring an offer to avoid the 'public offering' threshold is a frequent point of dispute, since the classification depends on the number and type of offerees rather than the label the parties give the transaction.

Report on large shareholding changes (5% rule)

A person who comes to hold 5% or more of a listed company's voting shares, or whose holding changes by 1% or more thereafter, must report the change and its purpose within 5 business days (자본시장법 제147조). Mischaracterizing the purpose as 'simple investment' when in fact the holding is aimed at influencing management is a common basis for FSC sanctions.

Periodic and material fact disclosure

Listed companies must file business, semi-annual, and quarterly reports, and separately disclose material facts affecting investment decisions without delay (자본시장법 제159조, 제161조). Whether a given internal event was 'material' enough to require disclosure, and at what point it became determinate, is usually the contested issue rather than the disclosure requirement itself.

Capital Markets Act | Unfair trading: insider dealing and market manipulation

Unfair trading provisions carry the most severe sanctions in the Act, including criminal penalties and disgorgement of profit, so early factual analysis of intent and information flow is critical.

Use of material non-public information

It is prohibited for a corporate insider, quasi-insider, or a tippee who received information from them to trade a listed security using material non-public information before it is disclosed (자본시장법 제174조). The key factual disputes are usually whether the information was actually 'material', whether it had already become public through another channel, and whether the trader in fact used that information as opposed to trading for unrelated reasons.

Market manipulation and price fixing

Placing orders intended to create a false impression of active trading, or to fix or peg the price of a security, is prohibited regardless of whether the manipulation ultimately succeeds (자본시장법 제176조). Because intent to induce other investors' trading decisions is an element, prosecutors and the FSS typically build a case from trading patterns and order timing rather than a single transaction.

Fraudulent means and criminal penalties

The Act's general anti-fraud provision prohibits any fraudulent scheme, device, or artifice in connection with the trading of securities (자본시장법 제178조), and unfair trading offenses under Articles 174, 176, and 178 carry imprisonment and fines that can be scaled to the profit gained (자본시장법 제443조). Where illicit gain exceeds certain thresholds, sentencing can escalate significantly, which is why early counsel on the scope of 'profit gained' matters.

⚠ Statute of limitations on unfair trading offenses

Criminal prosecution for unfair trading offenses is subject to the general statute of limitations under the Criminal Procedure Act (형사소송법), which runs from the date the offense is completed and can extend up to 10-15 years depending on the maximum statutory penalty involved; this timing should be checked case by case rather than assumed.

Capital Markets Act | Conduct-of-business rules for licensed intermediaries

Financial investment business entities and their employees face a separate layer of duties toward customers, and breaches here more often lead to administrative sanctions and civil liability than criminal exposure.

Suitability and explanation duties

A financial investment business must assess whether a product is suitable for a customer's investment purpose, experience, and financial condition, and must explain the product's structure and risks before recommending it (자본시장법 제46조, 제47조). Disputes in this area typically center on whether the explanation was adequate for that specific customer, not merely whether a disclosure document was handed over.

Unfair solicitation and conflicts of interest

Soliciting investment by providing a conclusive judgment about future price movements, or failing to manage a conflict of interest between the firm and the customer, can constitute a breach of conduct rules and expose the firm to administrative sanction (자본시장법 제49조). Internal communication records and the sequence of recommendations are usually the decisive evidence.

Capital Markets Act | From initial fact review to closing the matter

Initial fact review and document intake
We review the regulator's request, internal trading records, or the transaction structure at issue to identify which provisions of the Act are actually implicated.

Risk assessment and strategy
We assess whether the matter is likely to remain administrative (FSC/FSS) or escalate to a criminal referral, and set a strategy for responding to inquiries or filing corrective disclosures.

Response to regulator or preparation of filings
We prepare responses to FSS document requests, attend interviews if needed, or prepare corrective/amended disclosure filings to address the identified issue.

Sanction proceedings or investigation
If the matter proceeds to an FSC sanctions committee hearing or a criminal investigation, we prepare opinion statements and represent the client through the relevant stage.

Resolution and follow-up compliance
Once the matter concludes, we advise on remaining compliance obligations such as follow-up reporting or internal control improvements to reduce recurrence risk.

Capital Markets Act | How fees are determined

Advisory retainer
For ongoing disclosure or transaction advisory work, fees are generally structured as a retainer or per-matter fee based on the complexity of the transaction and the volume of documents to be reviewed.

Investigation defense retainer
For representation in an FSS investigation or FSC sanctions proceeding, the retainer reflects the expected number of interviews, hearings, and the volume of trading data to be analyzed.

Criminal defense fees
If a matter is referred for criminal investigation or prosecution, fees follow the standard structure for criminal defense engagements and are quoted separately from any prior administrative-stage work.

Disbursements
Costs such as expert analysis of trading data, translation, or expedited document production are billed separately as actual expenses incurred.

※ Costs vary depending on case complexity and specific circumstances; exact fees will be provided during consultation. No specific outcome is guaranteed.

Capital Markets Act | Self-assessment checklists

1️⃣ For issuers and major shareholders

Has your shareholding in a listed company crossed the 5% threshold or changed by 1% or more since your last report?
Has a material internal event occurred that has not yet been disclosed as a material fact?
Are you planning an offering structure designed to fall below the public offering threshold?
Have you reviewed whether your periodic report accurately reflects a recent change in business condition?

2️⃣ For individuals contacted by the FSS

Did you trade the security shortly before a material announcement was made public?
Do you have a documented, unrelated reason for the timing of your trade?
Have you received a written request for materials, or only an informal phone inquiry so far?
Have you preserved your own trading records and communications rather than relying on the regulator's version?

3️⃣ For financial investment business employees

Can you show that the customer's investment profile was assessed before the product was recommended?
Do your records show the specific risks that were explained to this customer, not just a generic disclosure?
Was there any conflict between your firm's interest and the customer's interest in this recommendation?
Have you kept internal chat or call records related to the transaction at issue?

Frequently Asked Questions

Q. I received a request for materials from the Financial Supervisory Service. Does that mean I am being criminally investigated?

A. Not necessarily. The FSS conducts both administrative fact-finding and referrals that can lead to criminal investigation, and a request for materials by itself does not indicate which track a matter will follow. The nature of the request and the specific provisions cited usually give an early indication of how serious the matter is.

Q. What counts as 'material non-public information' under the insider trading provision?

A. Information is generally considered material if a reasonable investor would view it as likely to affect the investment decision, and non-public if it has not yet been disclosed through the channels the Act recognizes, such as a public disclosure filing (자본시장법 제174조). Whether specific information meets this bar is fact-specific and is usually the central issue in these cases.

Q. Can a company be sanctioned even if the disclosure violation was unintentional?

A. Administrative sanctions for disclosure violations can apply regardless of intent, though the presence or absence of intent, and whether the company self-corrected once it discovered the issue, typically affects the severity of the sanction imposed by the FSC.

Q. What is the difference between the FSC and the FSS in these matters?

A. The Financial Supervisory Service (FSS) conducts the investigation and fact-finding, while the Financial Services Commission (FSC) is the body that makes the final administrative sanction decision based on the FSS's findings and any deliberation committee review.

Q. How long does an FSS investigation into unfair trading usually take?

A. There is no fixed statutory timeline, and duration depends on the volume of trading data involved and whether the matter is referred to prosecutors. Cases involving a single suspected transaction can move faster than those involving trading patterns across multiple accounts.

Q. If I am only a tippee who received information from an insider, am I still exposed?

A. Yes. The prohibition on trading using material non-public information extends to a person who received the information from an insider or quasi-insider, not only to the original insider (자본시장법 제174조). Exposure for a tippee generally requires showing that the person knew, or should have known, the information's source and nature.

Q. Is a corrective disclosure filing an admission that a violation occurred?

A. Filing a corrective or amended disclosure is a way to address an identified gap and can be viewed favorably as evidence of good faith, but it does not by itself resolve whether an earlier disclosure violation occurred. Whether sanctions still follow depends on the FSC's assessment of the original filing's adequacy.

Q. Do I need a lawyer just to respond to an initial FSS document request?

A. It depends on the scope of the request and how the underlying transaction is likely to be characterized. Because the FSS can use early written responses as fixed statements later in the process, reviewing the request and your response with counsel before submission is often worthwhile even at this early stage.

Q. What penalties can follow a market manipulation conviction?

A. Market manipulation under Article 176 is punishable by imprisonment or a fine, and where illicit gain exceeds statutory thresholds, the penalty can be scaled up substantially based on the amount of profit gained (자본시장법 제443조). Disgorgement of the illicit gain can also be pursued separately from the criminal penalty.

Q. My case involves a small, unlisted company. Does the Capital Markets Act still apply?

A. Some provisions, such as the general prohibition on fraudulent trading practices, are not limited to listed companies, while others, such as the periodic disclosure and 5% reporting rules, apply specifically to listed issuers. Whether a specific unlisted-company transaction is covered depends on which provision is at issue.

Q. I am based outside Seoul. Can I still get advice on a Capital Markets Act matter?

A. Yes. Much of the work in these matters involves document and trading-record review that can be handled remotely, and a Capital Markets Act attorney at Law Firm Frontier can advise clients regardless of location and coordinate any necessary in-person attendance at FSS interviews or FSC hearings.

Q. What should I do if I am not sure whether my planned transaction triggers a disclosure obligation?

A. Rather than proceeding and correcting later, it is generally more efficient to have the transaction structure reviewed against the relevant disclosure thresholds beforehand. Consulting a capital markets act attorney at the planning stage can avoid the more costly path of a later corrective filing or sanction.