South Korea's Financial Services Commission published statutory interpretations of the large shareholding reporting rule, the so-called 5% rule, to reduce legal uncertainty over when institutional investors’ shareholder engagement is treated as influencing corporate management. The interpretations are intended to help institutional investors carry out stewardship-related activities while using the eased disclosure process available when the shareholding purpose is not to influence management. Under the current capital markets framework, investors must report holdings of 5% or more, subsequent changes of 1% or more, and changes in shareholding purpose to the FSC and the Korea Exchange within five days, with a longer deadline and abridged filing available where the purpose is not to influence corporate management. The FSC clarifies that engagement to improve annual general meeting culture, such as requesting early disclosure of agenda items or more detailed explanations, does not constitute influencing corporate management provided it is not aimed at changing the articles of incorporation. It also indicates that requesting treasury stock cancellation or asking companies to implement a treasury stock retention or disposal plan approved by shareholders is not influencing corporate management, in the context of Commercial Act amendments effective 6 March 2026 that require cancellation of newly acquired treasury stock within one year and existing treasury stock within one year and six months. The interpretations further confirm that investors can request compliance with dividend policies and implementation plans to make payouts more predictable in line with dividend indicators in corporate governance structure reports, and can demand explanations or comments on executive compensation policies, an area supported by recently enhanced compensation-related disclosure requirements. The FSC plans further follow-up measures in the first half of 2026, including seeking revisions to the stewardship code and updating the 2017 statutory interpretation guidebook after identifying areas where additional clarification is needed.
South Korea Financial Services Commission 2026-03-06
South Korea's Financial Services Commission clarifies the 5% large shareholding reporting rule to support institutional investors’ shareholder activities
South Korea's Financial Services Commission clarified the 5% large shareholding reporting rule to define when institutional investors' shareholder engagement influences corporate management. The guidance reduces legal uncertainty and facilitates stewardship activities under an eased disclosure process when the shareholding purpose is not to influence management. Further measures, including revisions to the stewardship code, are planned for the first half of 2026.