KFTC Set to Ditch Routine Wholesale Investigations of Inside Trading

The Korea Fair Trade Commission (KFTC), which used to simultaneously investigate a multiple number of corporations according to the category for inside trading, plans to probe only companies with irregularity allegations.

Vice Prime Minister and Mister of the Economy and Finance Lee Hyun-jai said, “I will revise laws and institutions to enliven the entrepreneurial sprit.” There is a stark corporate-friendly shift in economic policy.

KFTC Chairman Kang Chul-kyu announced a policy framework for inside trading probes, which centers on the repeal of wholesale investigations, at a regular briefing on February 24.

“We will regularly investigate corporations with inside trading allegations. However, we plan to periodically exempt corporations from probes if they have shed the practice of inside trading or if they have their own inspection systems in place,” said Kang.

The criteria for the exemption include: 1) the negligible number and enormity of violations found in the past probes, 2) the ratio of non-permanent members in the board of directors, the level of independence of the board of directors, and an excellent checks-and-balance system such as shareholder votes, and 3) the retention of an outside inspector or the formation of an inside trading commission within the organization.

“Entire probes were inevitable in the process of corporate restructuring after the 1997 foreign-exchange crisis. However, that practice raised concerns of administrative expediency,” Kang said. “Because the level of measures against inside trading is different, depending on corporate categories, we have decided to use new probe guidelines.”

The KFTC plans to reduce the items of annual inside-trading records by 25 percent for corporations with two trillion won in assets: a move to reduce their clerical burdens.

It also plans to replace blanket investigations it conducts at the beginning of year with ex officio probes into suspicious corporations with a one-week advance notice for investigations.

In related news, the vice prime minister in a luncheon meeting with economic researchers said, “The reason why corporate vitality is low is due to corporations’ own shortage of competences and institutional barriers.” He added, “I will boldly revise laws and institutions to enliven the entrepreneurial spirit.”

The Ministry of Finance and Economy is considering a tax break for big corporations’ launching of new business lines, measures to support corporate spin-offs, and a repeal of the investment ceiling in big corporations.

“The economy has to grow this year by more than five percent to curb unemployment and to stabilize the livelihood of the people,” said Lee. “If things remain as they are now, the five percent growth rate will be unlikely.”

Chi-Young Shin higgledy@donga.com