Illegal Stock Leading Room Securities Fraud Completely Blocked... "No Business Allowed in Open KakaoTalk Rooms"

Passed at the National Assembly Judiciary Committee Bill Review Subcommittee on the 27th

A bill to fundamentally block securities fraud by illegal stock reading rooms (quasi-investment advisory businesses) has passed the subcommittee stage of the National Assembly's standing committee.

On the 27th, the National Assembly's Political Affairs Committee approved the "Partial Amendment to the Capital Markets and Financial Investment Services Act," which strengthens regulations on quasi-investment advisory businesses, at the first bill review subcommittee. This amendment is primarily based on the "Strengthening Supervision Measures for Quasi-Investment Advisory Businesses" announced by the Financial Services Commission in 2021. The bill has been discussed in the National Assembly two years after its proposal. The amendment gained momentum recently as concerns arose that the mass limit-down incidents and stock price manipulation by CEO Ra Deok-yeon of Hoan originated from illegal reading rooms.

Key details include that quasi-investment advisory businesses will no longer be allowed to operate through online two-way communication channels. If they operate on a paid membership basis using two-way communication channels, they will be regarded as investment advisory businesses and required to register as such. This means that business methods using SNS open chat rooms will no longer be considered quasi-investment advisory businesses but will be subject to investment advisory regulations. This expands the existing bill, which only prohibited one-on-one two-way channel operations, to a broader scope.

Quasi-investment advisory businesses will only be permitted to operate through one-way channels. This includes chat rooms where recipients cannot input messages and notification talks. This aligns with the original intent of providing non-individualized investment advice to an unspecified large number of people.

Regulations on the entry and exit of quasi-investment advisory businesses will also be strengthened. This means that violating not only financial-related laws but also consumer protection laws (door-to-door sales, e-commerce laws) may make it difficult to enter the quasi-investment advisory business. A two-strike-out system will be applied to enable early exit of unqualified companies. Failure to comply with corrective actions under consumer protection laws will be added as a reason for cancellation of registration, and if a company receives fines or surcharges twice or more within five years for violating capital market laws, it will be subject to mandatory cancellation.

Furthermore, from now on, changes in executives of quasi-investment advisory businesses must be reported to the Financial Services Commission. This is a measure to prevent unqualified persons from entering as executives.

False and exaggerated advertising will also be prohibited. It is forbidden to promise compensation for losses or guarantee profits to consumers, and it is mandatory to notify consumers that the business is a quasi-investment advisory business, not a formal financial investment business operator. If a company promises to compensate consumer losses or guarantee profits, it will be subject to criminal penalties (up to 3 years imprisonment or a fine of 100 million KRW). Advertisements must not mislead consumers into thinking the company is a formal financial institution or present false or unrealized returns. Violations will result in fines of up to 100 million KRW.

A Financial Services Commission official explained, "Illegal one-on-one advice by quasi-investment advisory businesses will be fundamentally blocked," adding, "Strict regulations on unhealthy business practices such as promises of guaranteed profits and false or exaggerated advertising will minimize investor damage."

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