The cap on rewards paid to people who report stock price manipulation and accounting fraud will be abolished. Rewards for larger unfair-trading cases will increase, likely strengthening incentives for insiders to report wrongdoing.

The Financial Services Commission said on Tuesday the cabinet approved amendments to enforcement decrees under the Capital Markets Act and the External Audit Act. The amendments improve the reward system for reporting stock manipulation and accounting fraud and raise the effectiveness of sanctions for accounting fraud.

The existing ceiling on reward payments was 3 billion won for unfair trading and 1 billion won for accounting fraud. Those limits will be removed. The method for calculating rewards will also be simplified. Under the new system, rewards will be paid at up to 30 percent in proportion to illicit gains or penalties, instead of being calculated under complex criteria.

Specifically, 30 percent of illicit gains and other amounts will be used as the base amount, reflecting the reporter's contribution to detection and sanctions.

Sharing of report information among related agencies will also be strengthened. People who report to other agencies such as the National Police Agency or the Anti-Corruption and Civil Rights Commission will also become eligible for rewards if the information is transferred or shared with the Financial Services Commission and the Financial Supervisory Service.

Requirements for paying rewards to participants who report wrongdoing will also be eased. Previously, participants in unfair trading were excluded from rewards if they were reported to investigative authorities or notified to them.

Under the changes, a reporting participant will be able to receive part of a reward unless the person forced someone else to take part in criminal activity or repeated a violation within 5 years. The measure is intended to encourage reporting by participants who have inside information.

An advance payment system for rewards will also be introduced. Rewards are in principle paid after penalties and other amounts are definitively paid, but if payment is delayed due to lawsuits and other reasons, a portion of the expected payment can be received at the time a penalty is decided. The advance payment will be 10 percent of the expected amount, capped at 100 million won.

A basis for paying rewards will also be 마련ed when principal used for price manipulation is confiscated or recovered. Rewards will be calculated by multiplying the confiscated or recovered principal by 30 percent and reflecting the reporter's contribution rate.

The commission plans to pursue a revision to the Capital Markets Act in the first half of this year to allow confiscation or recovery of principal for other unfair trading such as insider trading and fraudulent trading.

Sanctions for accounting fraud will also be strengthened. When accounting fraud continues over a long period, penalties will be increased depending on the violation period. Until now, only the penalty for the year with the largest violation amount was imposed, but going forward it will be increased by 20 to 30 percent each year, considering violation motives such as intent and gross negligence and the number of business years involved.

A basis has also been 마련ed to impose penalties on those who bear substantive responsibility for accounting fraud. Currently, penalties for company-related individuals are calculated based on financial compensation received from the company, making it difficult to sanction those who ordered or led accounting fraud if they did not directly receive remuneration.

Under the changes, even without direct remuneration from the company, penalties can be imposed if there are economic gains from accounting fraud such as privately misused amounts and embezzlement or breach of trust amounts.

Remuneration or dividends received from affiliated companies will also be included in the 기준. If someone participated in accounting fraud but it is difficult to objectively calculate economic gains, a minimum base amount of 100 million won will apply.

The amendments are expected to take effect on May 26, the date of promulgation. Reward rules for unfair trading and accounting fraud will also take effect at the same time in line with the decree revisions.

An official at the commission said, "We will maintain a strict 대응 stance against unfair trading and accounting fraud to improve the fairness and transparency of the capital market."