South Korea to expand principal forfeiture in stock manipulation cases to cover insider trading, fraud

The Financial Services Commission plans to push amendments to the Capital Markets Act in the third quarter that would extend principal forfeiture — currently limited to market price manipulation — to cases involving undisclosed material information and fraudulent transactions, marking the first anniversary of the joint task force on eradicating stock manipulation.

The FSC also plans to introduce new authority to request telecommunications records, extend account freeze periods for unfair trading accounts and pursue early penalty levies, while deploying an AI-based "case analysis AI agent" to further strengthen its response to capital market misconduct.

FSC Chairman Lee Eok-won announced the measures Wednesday at a meeting held at Korea Exchange to review the first year of operations of the joint task force on eradicating stock manipulation. "We will not rest on the achievements of the past year, and will respond even more forcefully under the principles of swift detection, rigorous investigation and zero-tolerance sanctions," he said.

Lee said investigators would be granted authority to request telecommunications records to prevent destruction of evidence and pursue criminals to the end. "We will also expand principal forfeiture, currently applicable only to market price manipulation, to cover the use of undisclosed material information and fraudulent transactions," he said.

He added that the FSC would refine the penalty levy system and extend account freeze periods to block the concealment of illicit funds.

The FSC said it would review the task force's first-year achievements and pursue follow-up legislation to further strengthen its investigation and sanctions authority.

The commission plans to introduce legislation in the third quarter that would create new authority to request telecommunications records and expand the scope of principal forfeiture and recovery to cover insider trading and fraudulent transactions, in addition to market price manipulation. It also said it would review extending freeze periods on accounts involved in unfair trading and improving penalty levy procedures.

The FSC plans to significantly strengthen its AI-based market surveillance system. It will deploy a "case analysis AI agent" capable of detecting crimes carried out through YouTube and social media and cross-analyzing trading patterns. The commission also intends to improve the completeness of investigations to enable early penalty levies, and will actively use administrative sanctions including restrictions on trading in financial investment products and limits on executive appointments.

Lee also praised the task force's achievements over the past year. "We detected unfair trading by individuals held to high ethical standards — including journalists and brokerage executives — instilling in the market a sense of vigilance that illegal conduct will be caught," he said. He added that the FSC, the Financial Supervisory Service and Korea Exchange had built a collaborative framework under one roof that accelerated case processing and helped establish the penalty levy system on a firm footing.

The joint task force detected more than 10 serious unfair trading cases over the past year, including long-running market price manipulation by ultra-high-net-worth individuals, insider trading by senior brokerage executives and the use of undisclosed information by disclosure officers at listed companies.

The task force has grown from 36 members at its launch to 90, with plans to expand further to 100. By linking Korea Exchange's rapid screening with the FSC and Financial Supervisory Service's immediate investigations and joint search and seizure operations, the team cut the screening period from six months to roughly three months.

"Eradicating unfair trading in the capital markets is not simply about punishing criminals — it is about protecting the integrity of our capital markets," Lee said. "I ask the FSC, the FSS and Korea Exchange to work together as an even stronger single team to realize justice in the capital markets."