Serious Lack of Disclosure Capability Among Unlisted Companies... 101 Firms Violated Regulations Last Year

Financial Supervisory Service Detects 116 Cases of Disclosure Obligation Violations in 2023
28 More Cases Than Previous Year
96% Are Unlisted Companies... Lack of Awareness and Legal Knowledge

Financial Supervisory Service building in Yeouido, Seoul. Photo by Younghan Heo younghan@

#. Unlisted company A raised 2 billion KRW through preferred shares from 105 members of three investment associations. However, they failed to recognize that each member of the investment associations should be considered a subscription solicitation target and mistakenly treated it as a private placement, thus not submitting a securities registration statement to the financial authorities.

#. Unlisted company B, subject to external audit, ceased operations due to worsening management and did not receive an audit from an external auditor. Consequently, it did not submit a business report to the financial authorities. This was because they were unaware that even if the external audit is delayed due to management deterioration, the obligation to submit the business report must still be fulfilled.

On the 26th, the Financial Supervisory Service (FSS) announced that it took action on 116 cases (105 companies) of violations of disclosure obligations under the Capital Markets Act by listed and unlisted companies in 2023, an increase of 28 cases (40 companies) compared to the previous year. The majority of these were unlisted companies (101 companies), accounting for 96.2% of the total.

Last year, as the FSS initiated planned investigations focusing on unlisted companies with insufficient disclosure capabilities, the total number of sanctions increased sharply. The authorities focused on violations of the obligation to submit regular reports and the obligation of online small-amount securities issuers to post financial statements.

By type of disclosure violation, other disclosure violations such as failure to post financial statements by online small-amount securities issuers (71 cases) were the most frequent. This was followed by △ regular disclosure (27 cases) △ issuance disclosure violations (14 cases) △ major event disclosure (4 cases). Regular disclosure violations include failure or delayed submission of business (quarterly/half-yearly) reports and false entries of important matters. Issuance disclosure violations involve failure to submit securities registration statements or small-amount public offering disclosure documents. Major event disclosure violations include omission of important details in major event reports when issuing convertible bonds.

By company type, 4 listed companies and 101 unlisted companies were sanctioned. Unlisted companies, which generally have relatively insufficient disclosure capabilities, accounted for 96.2% by number of companies. These are mainly small-scale companies where lack of awareness of the importance of disclosure duties, unfamiliarity with related laws, and shortage of disclosure personnel are intertwined.

By type of sanction, 14 cases (12.1%) received severe sanctions such as fines, penalties, and restrictions on securities issuance. Restrictions on securities issuance are imposed on companies that have been delisted or lack the ability to pay fines. The remaining 102 cases (87.9%) received mild sanctions such as warnings.

The FSS will strengthen investigations into serious disclosure violations. Companies repeatedly violating regular disclosure obligations will face severe sanctions such as fines. If a company violates the obligation to submit regular reports four or more times within two years, the sanction may be escalated from a mild warning to a fine.

The FSS stated, "This year, we will focus investigative resources on serious and repetitive disclosure violations that have significant impacts on investor protection and market order," and added, "To prevent disclosure violations, we plan to guide and educate the industry on sanction cases and precautions to foster a proper disclosure culture."

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