![Rep. Park Hong-bae of the Democratic Party of Korea [provided by the lawmaker's office]](https://wimg.heraldcorp.com/news/cms/2026/08/18/news-p.v1.20260818.4fbb4717ba924defa4f5c7751df8f63d_P2.jpg)
Rep. Park Hong-bae of the Democratic Party of Korea, a member of the National Assembly's Political Affairs Committee, announced Tuesday that he has introduced a bill to amend the Financial Investment Services and Capital Markets Act. The bill seeks to clarify safe harbor exemptions under the large shareholding disclosure regime — commonly known as the "5% rule" — to encourage responsible shareholder engagement by institutional investors and public pension funds.
Under the current Capital Markets Act, any person whose combined shareholdings with specially related parties reach 5 percent or more must report their holdings and the purpose of those holdings. Implementing regulations classify as jointly held shares — and thus as specially related parties — those who have agreed to jointly acquire or dispose of shares or to exercise voting rights together.
According to Park, concerns have long been raised that even institutional investors soliciting proxy votes or exercising delegated voting rights on specific agenda items at shareholder meetings could be interpreted as joint holders, effectively chilling normal shareholder engagement.
The bill would enshrine the core definition of specially related parties directly in the statute. Those who jointly exercise voting rights through the authority to direct how votes are cast would still be classified as specially related parties, but the bill would exclude cases in which voting rights are delegated and exercised through a proxy solicitation conducted under the Capital Markets Act.
The intent, Park's office explained, is to draw a clear distinction between proxy solicitations conducted through open, publicly disclosed procedures and private agreements among specific shareholders to exercise voting rights jointly — thereby establishing an unambiguous safe harbor for normal shareholder activities.
The bill also revises the standard for declaring the purpose of a large shareholding. The current formulation — "for the purpose of influencing the issuer's management control" — would be replaced with "for the purpose of exercising de facto control over major management matters." The existing term "management control" has been criticized for lacking a clear legal definition and scope, making it difficult to distinguish between voicing opinions on corporate management and seeking to dominate key decision-making. The amendment introduces the specific benchmarks of "major management matters" and "de facto control" to sharpen the boundaries of the enhanced disclosure regime.
The bill defines major management matters to include the appointment and dismissal of executives, suspension of their duties, and amendments to the articles of incorporation relating to corporate bodies such as the board of directors. It draws a distinction, however, between the appointment of general executives and the appointment of independent directors, auditors and audit committee members — reflecting the view that replacing executives to seize management control differs fundamentally in character from appointing independent directors and auditors to strengthen corporate oversight. Proxy solicitations, simple expressions of opinion and public statements are also excluded from the conduct assessed in determining whether de facto control is being exercised.
The bill extends a degree of safe harbor protection to public pension funds, their delegated asset managers and similar entities when they exercise shareholder rights relating to amendments to articles of incorporation concerning corporate bodies, provided they do so in accordance with principles they have publicly disclosed in advance for the purpose of improving governance across their investee companies. The bill would also allow the content and timing of disclosure requirements to be set differently for certain professional investors — including public pension funds and their delegated managers — taking into account their public-interest mandate and the nature of their investment activities.
"The 5% rule is a regime designed to transparently inform the market of potential changes in corporate control — not to obstruct institutional investors' legitimate exercise of voting rights or their efforts to enhance corporate value," Park said. "Enhanced disclosure requirements should apply to conduct that seeks to exercise de facto control over a company's major decisions, but a clear safe harbor must be established for publicly conducted proxy solicitations under the law and for normal shareholder engagement activities."
bigroot@heraldcorp.com
