Academic journal article Asia Pacific Law Review

Extraterritorial Application of the Korean Capital Markets Act: Lessons from Securities Regulations in the United States

Academic journal article Asia Pacific Law Review

Extraterritorial Application of the Korean Capital Markets Act: Lessons from Securities Regulations in the United States

Article excerpt

I. Introduction

The Financial Investment Services and Capital Markets Act ('Capital Markets Act') took effect on 4 February 2009 in Korea.1 By consolidating the six separate laws that governed capital markets in the past, the Capital Markets Act aims to spur the innovation of financial products and competition among financial institutions.2 The previous Korean Securities and Exchange Act, which mainly regulated securities transactions and markets before the enactment of the Capital Markets Act, was silent concerning the jurisdictional scope of the Act. Unlike the past law, the Capital Markets Act explicitly introduced a new provision recognising the extraterritoriality of the Act. Article 2 of the Capital Markets Act supports extending the reach of the Act to foreign securities transactions by providing that: 'Activities conducted in a foreign country shall be governed by this Act, if the effects of such activities extend to the territory of the Republic of Korea.'

In regard to the limits of a nation's power to unilaterally regulate conduct that occurs outside of its borders, there is general agreement that laws may have some extraterritorial reach.3 However, the issue of the extraterritoriality of an act is distinct from that of choice of law. As transnational business activities are increasing, there may be more chances of conflict of economic laws in cross-border litigation. These issues can be categorised as follows. The first conflict pertains to the question whether the parties' choice of a foreign forum or foreign law may or should operate to exclude the application of Korean laws.4 This type of conflict is resolved through direct application of traditional choice-of-law rules.5 In contrast, the second form of regulatory conflict arises when one sovereign seeks to apply its economic laws to conduct that occurs in another state, which is not an issue of choice of law but rather a question of jurisdiction.6 In the second type of conflict, for instance, a domestic court may be required to determine whether the Capital Markets Act applies to a securities transaction when the transaction itself occurs in a foreign country.7 In considering a claim that particular offshore conduct violates the Capital Markets Act, a court does not choose between the Capital Markets Act and a foreign regulatory law; rather, it chooses either to apply the Act or to dismiss the claim.8 In such cases, the issue is simply defining the scope of the Capital Markets Act - that is, determining whether the relevant provision of the Act reaches the conduct in question.9 The main concern of this article is the second type of regulatory conflict.

Faced with the internationalisation of capital markets,10 Korea needs to protect its investors and markets by applying the relevant laws extraterritorially. If transactions with an international aspect cause substantial harm to interests in Korea by violating the Capital Markets Act, it would be a proper argument that the transactions should be regulated by the Act. The question still remains, however, how far the reach of the Capital Markets Act extends to cover overseas activities. Extraterritorial jurisdiction, just like general jurisdiction, can be divided into three forms: prescriptive or legislative, adjudicative, and enforcement.11 To be sure, article 2 of the Capital Markets Act comprehensively provides for prescriptive extraterritorial jurisdiction, but the enactment of extraterritoriality alone does not guarantee that the Act will be applied to cross-border transactions effectively. The effective extraterritorial application of an act is inseparable from the adjudicative and enforcement jurisdiction of the act. Adjudication and enforcement of the Capital Markets Act can take the following different forms: (1) private litigation in court where injured persons seek damages and/or rescission of contracts; (2) Financial Services Commission ('FSC')12 enforcement actions against companies or market intermediaries in administrative proceedings; (3) criminal actions by the Ministry of Justice ('MOJ');13 and (4) Self-Regulatory Organisation ('SRO') actions to sanction members for violations of SRO rules which have been approved by the FSC. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.