Kakao Pay, Foreign Investment System Exposed by Delayed Reporting... Numerous Loopholes

Kakao Pay, Second Largest Shareholder Alipay and Other Foreign Investors Report Stakes Late
Foreign Ownership Expands from 2.39% to 45.17%
Deliberate Delay or Non-Reporting Only Results in 'Correction Measures'
Foreign Registration Cancellation Rules Lack Practicality and Are Ineffective... No Deadline for Stake Reporting

[Asia Economy Reporter Ji Yeon-jin] The loopholes in the foreign investment system have been exposed following Kakao Pay's delayed reporting of foreign shareholdings after its listing on the Korea Exchange. Foreign investment trends serve as a key indicator in the domestic stock market, but there is no set deadline for reporting foreign investments, and some penalty provisions are outdated and effectively obsolete.

According to the Financial Supervisory Service (FSS) on the 12th, Kakao Pay did not report foreign stock acquisition details, including Alipay's 39.12% stake, to the FSS at the time of its listing on the 3rd. Kakao Pay submitted the report belatedly on the evening of the 10th, immediately after inquiries from this publication regarding the foreign shareholding ratio (2.39% as of the closing price on the 10th). As of that day, Kakao Pay's foreign shareholding ratio had expanded to 45.17%.

According to the Enforcement Rules of the Financial Investment Services Act, newly listed corporations or those merged with other listed corporations must report foreign stock acquisition details to the FSS Director "without delay." However, this regulation does not specify a reporting deadline, and the vague term "without delay" leaves the system powerless against intentional reporting delays.

There is a penalty clause stating that if a report is not submitted to the FSS, "the Financial Services Commission may order corrective measures or instruct the FSS Director to take necessary actions such as canceling the investment registration." However, since the sanction involves the extreme measure of canceling foreign investment registration, it has become effectively obsolete. An FSS official stated, "For listed companies or financial institutions, since the shares are not owned by themselves, corrective measures can only be taken through documents or verbal instructions," adding, "Although there are regulatory sanctions, the regulations themselves are broad, so aside from urging prompt correction, there are no additional methods."

Currently, with a vast number of listed stocks?939 on KOSPI and 1,528 on KOSDAQ?the financial authorities have no choice but to implement corrective measures in a somewhat ad hoc manner.

Major advanced countries operate foreign investment systems that regulate foreign capital investments to protect their key industries. South Korea also restricts foreign stock acquisitions in certain listed corporations engaged in industries vital to the national economy under laws such as the Capital Markets Act, the Telecommunications Business Act, and the Broadcasting Act. To this end, foreigners are required to register their investments with financial authorities and report any changes.

Foreign investment trends are also used as meaningful data in the domestic stock market. Foreign ownership in the domestic stock market typically hovers around 30%, making them an important supply and demand factor. Therefore, if foreign investment trend indicators are distorted, it could not only harm investors but also lead to a decline in trust in the Korean market.

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