Unfair practices in the capital market are becoming increasingly sophisticated and complex, with only three digital forensics specialists identified within the financial authorities. With the anticipated launch of alternative trading systems (ATS) next month and the resumption of short selling, there are concerns that this could lead to a rise in demand for unfair investigations, prompting calls to bolster the authorities' investigative capacity.
According to financial authorities on the 6th, there are currently about 30 personnel related to capital market investigations under the Financial Services Commission (FSC). Among them, only three can handle digital forensics equipment at a professional level, including a newly hired forensic expert at the 6th grade of the term-based civil servant system last year.
The role of advanced technologies like forensics is growing within the government's capital market monitoring system. This is due to the increasing sophistication and complexity of illegal schemes. A recent classification of 30 cases detected over the past five years by the Capital Market Research Institute, based on price manipulation methods, revealed 11 cases of wash trading, 20 cases of upper and lower limit price buy orders, 4 cases involving closing price manipulation, and 16 instances of phantom orders. Additionally, regarding the number of methods used per case, one method was used in 10 cases, two methods in 16 cases, and three methods in 3 cases. This means that 60% of price manipulation schemes involve a combination of various methods to evade surveillance.
Using multiple brokerage accounts or nominee accounts, or utilizing price support to entice third-party transactions through wash trading, is also becoming more advanced. The destruction of evidence is becoming meticulous, making forensic assistance essential for improving detection rates. An official from the Financial Services Commission remarked, "Unfair practices appear much more frequently in chaotic times like these than when the market atmosphere is good," adding that there is a state of being overwhelmed with the flood of investigations.
Of course, the FSC does not conduct investigations alone. Generally, investigations into unfair trading in the capital market proceed in the order of suspicion capture and examination (Korea Exchange) → investigation (FSC and Financial Supervisory Service) → prosecution (prosecution service). Compared to the FSC, the Financial Supervisory Service (FSS) has more investigative personnel and equipment, and has more experience. Cases requiring swift investigation are handled separately by special judicial police with prosecutorial authority.
However, the FSS has limited investigative authority. The FSS can request attendance from the subjects of investigation or demand the submission of transaction information and statements. Since it is a voluntary investigation, if the subjects refuse to submit, coercive powers cannot be invoked. Although special judicial police have more authority, their teams are limited to three, which means they cannot handle all the urgent investigative issues.
As a result, there are calls within and outside the government to strengthen the investigative capacity of the FSC itself. A financial investment industry official noted, "If we cannot delegate more authority to the FSS or significantly increase the number of special judicial police, then we must at least bolster the FSC's investigative capabilities to address the influx of investigations into unfair practices."
In the market, there are predictions that once NextTrade, the first domestic ATS, launches in March and short selling resumes, the demand for investigations into unfair practices will inevitably increase. With the introduction of ATS, trading of domestic stocks will take place across multiple markets, including the Korea Exchange (KRX) and NextTrade. Investors can choose their trading market based on factors such as fees and speed. Trading hours will also be extended to 8 a.m. to 8 p.m. (based on ATS).
Some experts argue that even if the FSC increases its forensic personnel and equipment, there will still be limitations in investigations. This is because the FSC does not have the authority to conduct communication inquiries like the prosecution or special judicial police. Under the current structure, only forensic investigations related to stock trading involving price manipulation can be conducted. The conversations the subjects of investigation have had with others cannot be verified.
Experts emphasize the need to ultimately streamline the investigation system for unfair trading. Hwang Hyun-Young, a researcher at the Capital Market Research Institute, stated, "It is important to resolve overlapping issues between investigative agencies and decision-making bodies beyond simple collaboration or information sharing, establishing clear role distinctions among agencies," further urging the need to strengthen investigative authorities like communication inquiry rights and coercive investigation rights to enable swift and efficient investigations.