No Cases of Nominee Transactions by Financial Investment Employees... Law to Strengthen Punishments Proposed

No Sanctions for Investment Firm Employees' Nominee Transactions
"Learning from the LH Scandal" Push to Strengthen Punishment for Investment Firm Employees' Nominee Transactions
Financial Services Commission: "Prevention More Effective Than Strict Punishment," Negative Stance on Amendment Proposal

[Asia Economy Reporter Ji Yeon-jin] It has been revealed that the punishment for nominee transactions by executives and employees of securities firms and other investment companies has been lenient. In the wake of the Korea Land and Housing Corporation (LH) scandal, public opinion has intensified on the need to prevent speculative profits using insider information, and laws to strengthen punishment for nominee transactions by executives and employees are being promoted. However, the Financial Services Commission has expressed reluctance, stating that "preventive activities are more effective."

According to the National Assembly's Political Affairs Committee on the 18th, the first subcommittee on bill review submitted a revision of the Capital Markets Act that strengthens punishment for financial investment business employees who trade financial investment products under names other than their own. The revision, led by Min Hyung-bae of the Democratic Party of Korea, raises the penalty to imprisonment of up to five years or a fine of up to 200 million won for nominee transactions by financial investment business operators.

Under current law, employees of financial investment business operators must use a single account under their own name when trading financial investment products on their own account and notify their affiliated institution quarterly of the transaction details. Violations are subject to ▲ imprisonment of up to three years or a fine of up to 100 million won ▲ a fine of up to 50 million won ▲ dismissal, suspension, or warning as disciplinary measures.

According to the review report by Lee Yong-jun, senior expert of the Political Affairs Committee, from 2018 to last year, there were 97 sanctions for violations of financial investment product trading regulations, including 65 cases involving financial investment business operators, one case involving securities finance company employees, and 31 cases involving the Financial Supervisory Service. Among these, there was not a single case where sanctions were imposed solely for violating the prohibition on nominee transactions. Even in cases of multiple violations including nominee transactions, except for Financial Supervisory Service employees, most sanctions were limited to fines or disciplinary measures.

Senior expert Lee explained, "Considering that employees engaged in financial investment business have relatively greater access to high-level information, the purpose of the amendment to impose stricter regulations to prevent nominee transactions by employees is positive. Although criminal penalties for nominee transactions are possible under current law, most sanctions have been through disciplinary measures and fines, so it seems necessary to prioritize management and supervision to ensure effective sanctions."

He also mentioned that since the Act on the Aggravated Punishment of Specific Economic Crimes stipulates imprisonment of up to five years for executives and employees involved in bribery or offering related to their duties, it is necessary to raise penalties related to nominee transactions for fairness in sanctions.

However, the Financial Services Commission opposed, stating, "Regulation of nominee transactions is a procedural regulation aimed at proactively blocking unfair trading possibilities such as illegal use of job-related information by securities firm employees and facilitating audit tracking. Rather than strict punishment, preventive activities such as guidance by financial authorities, securities firms’ internal education, and strengthening compliance monitoring functions impose less regulatory burden than criminal penalties and are a more effective approach."

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