The cap on rewards for reporting stock price manipulation and accounting fraud will be abolished. In particular, as rewards can be paid in proportion to the size of the penalty surcharge, the incentive to report unfair transaction is expected to be further strengthened.
The Financial Services Commission said on the 20th that amendments to the enforcement decrees of the Financial Investment Services and Capital Markets Act and the External Audit Act, which include these measures, were approved at a Cabinet meeting. The amended enforcement decrees will take effect on the promulgation date, May 26.
◇ Sharp increase in rewards for stock manipulation and accounting fraud
First, the cap on rewards for stock price manipulation and accounting fraud will be completely abolished. Previously, there were payment caps of 3 billion won for unfair transaction and 1 billion won for accounting fraud, prompting criticism that compensation was not sufficient compared with the risks borne by whistleblowers.
Accordingly, the government will greatly expand the size of reward payments. Going forward, up to 30% will be paid as a reward in proportion to the size of the ill-gotten gains or the penalty surcharge. In addition, if the principal used for price manipulation among unfair transaction acts is confiscated or collected, a basis has been established to pay a portion of that amount as a reward.
The reward payment process will also be improved. In principle, rewards are paid after the penalty surcharge is finally paid, but to speed up payment, 10% of the scheduled reward amount (up to 100 million won) will be paid in advance once the imposition of the penalty surcharge is decided.
◇ Improving the effectiveness of reporting
Reporting channels will also be expanded. Even if a report is filed with another agency, such as the Korean National Police Agency or the Anti-Corruption & Civil Rights Commission, a reward can be paid if the information is transferred to or shared with the Financial Services Commission (FSC) and the Financial Supervisory Service.
Those who participated in unfair transaction can also receive rewards. This is to actively encourage reports by insiders. Previously, if a participant was reported or referred to investigative authorities, they were excluded from receiving rewards, but now, unless the person coerced others to participate in the criminal act or repeated violations within the past five years, a certain portion of the reward can be paid.
◇ Harsher penalties for accounting fraud
If accounting fraud continues for a long period, the penalty surcharge will also be aggravated. Previously, to prevent the penalty surcharge burden from becoming excessive, only the penalty surcharge for the fiscal year with the largest violation amount was imposed, but going forward, it will be increased by 20% to 30% each year, taking into account the motive for the violation and the number of fiscal years.
A basis has also been established for imposing a penalty surcharge on the de facto person responsible for accounting fraud. Until now, it was difficult to impose a penalty surcharge when a person directing or ordering window dressing, such as an operations director, did not receive direct compensation or dividends from the company, but going forward, a penalty surcharge can be imposed even when there is economic benefit such as the amount of private use, embezzlement, or breach of trust.
Meanwhile, at the Cabinet meeting that day, there was also a remark by the president that the effectiveness of rewards for reporting illegal acts should be strengthened. President Lee Jae-myung said about rewards for reporting illegal acts, "If you can get enough to change your life for reporting bad behavior, they do that a lot overseas. The deterrent effect would be great."