Financial Services Commission Significantly Raises Cap on Penalties for Violations of the '5% Rule'

Average 370,000 KRW → 15,000,000 KRW
Legislative Notice for Revision of Self-Rule Act
Strengthening Disclosure Obligations for CB and BW
Mandatory Submission of Quarterly Reports Before Listing

[Asia Economy Reporter Ji-hwan Park] The penalty for violating the 5% large shareholding reporting obligation (5% rule), which averaged only 370,000 KRW over the past three years, will increase to around 15 million KRW.

On the 3rd, the Financial Services Commission announced a legislative notice for amendments to the Capital Markets Act and subordinate regulations, including raising the penalty for violating the 5% rule from 1/100,000 to 1/10,000.

Under the current Capital Markets Act, investors who hold 5% or more of a listed company's shares or experience a subsequent change of 1% or more in their stake must report and disclose related regulations within five days if there is a change in the purpose of holding or major contract terms. However, the current law has been ineffective, with penalties averaging only 370,000 KRW over three years.

The amendment applies the minimum market capitalization standard (100 billion KRW) even to companies with low market capitalization (under 100 billion KRW). The Financial Services Commission expects the average penalty to rise to about 15 million KRW after the amendment.

Disclosure requirements for privately placed convertible bonds (CB) and bonds with warrants (BW) will also be strengthened. Going forward, companies must disclose a major report at least one week before the payment date when issuing privately placed CBs or BWs.

Newly listed companies will be required to submit quarterly and semi-annual reports immediately before listing. Until now, newly listed companies were not obligated to submit these reports before listing, making it difficult for investors to access up to six months of financial information.

The penalty imposition standards for disclosure violations such as business reports will also be adjusted: the maximum penalty for listed companies will be set between 1 billion and 2 billion KRW, while the cap for unlisted companies will be lowered from 2 billion KRW to 1 billion KRW.

The Financial Services Commission plans to submit the amended Capital Markets Act to the National Assembly within this year after legislative notice, regulatory review, and legal examination. Subordinate regulations such as enforcement decrees will also be revised to take effect on December 9, coinciding with the enforcement date of the amended Capital Markets Act.

This content was produced with the assistance of AI translation services.