South Korea Proposes Higher Penalties and Enhanced Corporate Governance Requirements
Investors failing to abide by report significant holdings in public securities will be subject to greater fines, firms issuing private convertible bonds (CBs) or bonds with warrants (BWs) will be required to file material disclosures earlier, and newly listed companies will have submit additional financials to the market under changes to corporate governance disclosure rules to come into effect in South Korea.
Under proposed rules released by the Financial Services Commission for comment until October 13, 2021, the penalties imposed for violating periodic and material disclosure requirements will be increased to between KRW1 billion and KRW2 billion for listed companies and maximum KRW2 billion to maximum KRW1 billion for non-listed companies.
The key reforms involve:
* Raising the monetary sanction on violation of the so-called “five percent rule” which requires investors holding 5% or more of equity securities of a listed company or those changing their holding status by 1% or more in the company to file a report with the FSC and the KRX within five days of such change taking place by raising the maximum fine from 1/100,000 of market capitalization to 1/10,000 of market capitalization :
* Enhancing disclosure rules for issuing private convertible bonds (CBs) or bonds with warrants (BWs) by requiring companies to file material disclosure at least one week prior to the payment due date in order to make relevant information available to investors in advance ;
* Requiring newly listed companies to submit quarterly and semi-annual reports that covering the accounting period immediately preceding their listing to enhance investor protection:
* Requiring companies that issue perpetual bonds to file material disclosure within one day from making such decisions:
* Improving penalty standards for violating the periodic and material disclosure requirements by adjusting the level of fines that can be imposed on both listed companies (between KRW1 billion and KRW2 billion) and non-listed companies (from maximum KRW2 billion to maximum KRW1 billion) for the purpose of imposing relatively heavier penalty burdens on listed firms.