South Korea's FSC Implements Revised Enforcement Regime with Transaction Bans and Account Freezes for Market Abuse

South Korea's Financial Services Commission activated a revised enforcement decree under the Financial Investment Services and Capital Markets Act on 23 April 2025, introducing a new suite of non-monetary sanctions targeted at unfair trading and illegal short selling in Korean capital markets. The changes add transaction bans and account freeze mechanisms to the FSC's existing enforcement toolkit, enabling regulators to restrict offenders' market access directly rather than relying exclusively on fines and criminal referrals.

Prior enforcement relied primarily on monetary penalties and, in serious cases, criminal prosecution — mechanisms that, according to the FSC, had left a high rate of repeat offending in unfair trading.

SCOPE OF TRANSACTION BANS AND ACCOUNT FREEZES

Under the revised decree, transaction bans restrict individuals and entities found to have engaged in unfair trading or illegal short selling from dealing in financial investment products for up to five years. The ban applies in principle to all financial investment products, with limited exemptions such as disposing of holdings acquired before the order, acquisitions through inheritance, stock dividends or mergers, and trading in debt securities unlikely to be involved in unfair trading. The length of the restriction depends on factors including the price impact, the volume of short-sale orders and the scale of unfair gains, with the maximum five years available where the price impact was considerable and false documents were submitted to conceal the violation.

The account freeze mechanism allows the FSC to require financial companies to freeze, for up to one year, accounts suspected of having been used in unfair trading or illegal short selling, preventing the dissipation or transfer of assets before enforcement proceedings reach their conclusion.

EXECUTIVE APPOINTMENT BANS AND RECIDIVISM REDUCTION

The revised framework also introduces prohibitions of up to five years on executive appointments at listed companies and at financial companies such as banks and insurers for individuals who have been found to have committed market abuse offences.

The FSC framed the overall package of new sanctions as aimed at reducing recidivism in market abuse. The FSC said the new non-monetary sanctions, already used in markets such as the US, Hong Kong and Canada, would help oust rule-breakers from the capital markets.