The government will completely abolish the cap on whistleblower reward payments to encourage internal reporting of capital market crimes such as stock manipulation and accounting fraud. It also decided to sharply increase the incentive for whistleblowing by paying the whistleblower up to 30% of the illicit gains recovered or the penalty surcharge imposed for unfair trading and accounting fraud.
The Financial Services Commission said on the 25th that it has prepared these institutional improvements to encourage active reports from insiders with key information related to unfair trading and accounting fraud.
Until now, the cap on rewards paid to whistleblowers was limited to 3 billion won for unfair trading and 1 billion won for accounting fraud.
The Financial Services Commission (FSC) explained, "Unfair trading and accounting fraud are organized, sophisticated crimes, making it difficult to detect violations and hard to prove allegations; insider information is therefore decisive. But from the insider's perspective, compensation has not been sufficient compared with the risks of reporting, so the larger the illicit gains from the violation, the weaker the incentive to report."
Accordingly, the Financial Services Commission (FSC) will amend the Enforcement Decree of the Financial Investment Services and Capital Markets Act and the Enforcement Decree of the Act on External Audit to remove the cap on whistleblower rewards.
The aim is to make clear the government's firm policy that "stock manipulation and accounting fraud will inevitably be exposed, and if caught, those involved will be ruined."
The complex method for calculating rewards will also be simplified. A certain percentage (up to 30%) of the illicit gains recovered or the penalty surcharge will serve as the base amount, and the final reward will be determined by reflecting the whistleblower's contribution.
In theory, reporting a 100 billion won stock manipulation case would allow the whistleblower to expect a 30 billion won reward.
Until now, rewards were calculated by considering various factors such as total assets, the number of violations, and the level of measures taken, which made it difficult for whistleblowers to predict the size of compensation in advance.
In addition, the Financial Services Commission (FSC) decided to guarantee a certain level of reward even if the amount of illicit gains or the penalty surcharge from illegal acts is not large. It will pay at least 5 million won for unfair trading and at least 3 million won for accounting fraud, and if payment is deemed necessary even when no penalty surcharge is imposed, it plans to pay within the same limits.
Also, going forward, rewards will be paid even when reports are made not to the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), or the Korea Exchange (KRX), but to other administrative agencies such as the Korean National Police Agency or the Anti-Corruption & Civil Rights Commission and the case is transferred or shared.
The Financial Services Commission (FSC) will first pay rewards from the budget, but it also plans to review creating a separate fund financed by penalty surcharges, among other sources, to secure stable funding for rewards.
The Financial Services Commission (FSC) explained that it will prepare the related amendments, go through a public notice of legislation, and implement them as early as the second quarter.