Regulation of mis-selling of over-the counter derivatives: comparative study of South Korea and the UK

The thesis analyses the conduct of business regulation (“COB”) regime of South Korea in comparison with the UK regime and assesses how well the COB regimes of the two countries have achieved the regulatory objective of preventing over-the-counter derivatives ‘mis-selling’. The thesis conducts a comparative study in three regulatory areas of the COB regimes: rule-making, rule-enforcing and private enforcement. In terms of rule-making, the UK formulates its rulebook using various rule-types and this enables to build foundation to satisfy both stability and rationality; South Korea, due to constitutional, political and historical constraints, creates a rulebook with only precise and clear rules, which, as a result, is one of the causes for the overall COB regime’s rigid legalism. In rule-enforcing, the UK relies on the goodwill of the regulated firms and selects the compliance-focused enforcement approach but in the end, such a soft enforcement strategy has failed in achieving the regulatory objectives. South Korea’s deterrencefocused enforcement has produced regulatory failure that the regulator as well as the regulated firms focus on the letters of rules instead of the regulatory objectives. In private enforcement, in the UK, the dissonance between the principles of private law and the COB in dealing with mis-selling of derivatives sometimes results in confusing situations where an action is subject to sanctions under the COB but not recognized as a liability under private law. In South Korea, because the COB is binding on the courts, there is no dissonance between the COB standards and private law; rather, the court’s approach of focusing on the substance of the COB requirements is complementing the regulator’s process-focused enforcement. Based on the comparative study, the thesis recommends for the UK to harmonize private law with the COB by placing the COB as the minimum requirement of private law. For South Korea, its recommendation is to shift the whole regulatory system from command and control style to the decentred one