"Preventing DLF Recurrence"... Financial Supervisory Service Conducts Intensive Inspections on High-Risk Product Sales Practices

Provided by the Financial Supervisory Service

[Asia Economy Reporter Kim Hyo-jin] The Financial Supervisory Service (FSS) has decided to closely monitor the unsound sales practices of financial companies regarding high-risk products and to conduct focused inspections on the sales activities of high-risk and daily life-related financial products to protect financial consumers.

The FSS announced on the 20th that it has established the '2020 Inspection Work Operation Plan,' which is based on these contents.

The FSS plans to inspect the entire sales process?including manufacturing, sales, and post-management?of high-risk products such as Derivative Linked Funds (DLF), overseas real estate, and hedge funds to check the status of financial consumer protection and internal controls.

It will also examine the implementation status by financial companies of comprehensive improvement measures for private equity funds, such as the high-level product sales conduct guidelines, strengthened explanation obligations, recording, and cooling-off systems. Furthermore, inspections will be intensified to determine whether there are any unsound sales practices regarding new types of funds and funds with rapidly increasing sales, focusing on the appropriateness of included assets, management strategies, and investor information provision.

Additionally, the FSS plans to prevent consumer damage in advance by conducting focused inspections on daily life-related insurance products with increasing sales recently, such as dementia insurance and dental insurance, as well as insurance products with high concerns of incomplete sales, including no- or low-surrender value insurance and foreign currency insurance.

Disorderly solicitation activities such as competition among insurance planners to attract clients, restructuring of recruitment commissions, and inducement of improper insurance contract conversions due to market saturation will also be subject to focused inspections. During insurance company inspections, linked inspections of loss adjustment subsidiaries and General Agencies (GA) will be conducted to comprehensively check fundamental factors causing consumer damage. The FSS plans to strictly respond with a zero-tolerance policy to insurance claim denials, reductions, and delays that seriously infringe on consumer interests.

The FSS will closely monitor sales trends, including product sales concentration and signs of incomplete sales by product and sales channel, and plans to link these with on-site inspections if necessary. For example, if abnormalities are detected through ongoing monitoring such as complaints, mystery shopping, and internal audit consultations, and if the financial company’s self-improvement is insufficient, on-site inspections will be conducted.

To induce improvements in internal controls related to high-risk product sales at banks, the FSS plans to establish a separate communication channel with executives responsible for sales of concurrently operated products. Currently, regular meetings are held with bank presidents and standing audit committee members responsible for overall internal controls, but there is no separate communication channel for executives in charge of high-risk product sales.

Alongside this, the FSS will continuously monitor unfair financial transaction practices such as forced bundling sales, improper collateral or guarantee demands, and unfair support for major shareholders or affiliates, and will take strict action upon detection.

The FSS will also focus on inspecting investment risks in high-risk assets such as overseas real estate to ensure that the expansion of risk asset investments in pursuit of high returns does not undermine the soundness of financial companies. In preparation for increased uncertainty in domestic and international real estate markets, it will check potential risk factors such as liquidity risks related to real estate financing and redemption suspensions of hedge funds.

In response to recent local economic downturns, the FSS plans to conduct in-depth analyses and tailored supervision on the profitability and soundness of regional banks, focusing on the impact of excessive metropolitan area expansion strategies and sluggish key industries in the region.

Furthermore, as three years have passed since the launch of internet-only banks, the FSS plans to closely monitor risk factors and conduct inspections on vulnerable sectors.

This content was produced with the assistance of AI translation services.