The Financial Consumer Protection Act Sees the Light After 9 Years... Path to K-Bank Normalization Also Opens

Prospects for Passage in the Plenary Session on the 5th

[Asia Economy Reporter Kim Hyo-jin] The 'Financial Consumer Protection Act (FCPA),' which has attracted attention as a measure to prevent a second 'overseas interest rate-linked derivative-linked fund (DLF) and Lime' incident, has finally seen the light of day after nine years. The core of the FCPA is to expand the application of major sales regulations, which were previously limited to certain financial products, to all financial products. Although punitive damages were not included, it is highly regarded for significantly strengthening the rights and interests of financial consumers.

The National Assembly is scheduled to hold a plenary session on the afternoon of the 5th to pass the FCPA. Since it was approved without any significant objections at the full meeting of the Legislation and Judiciary Committee the day before, which was the last hurdle before the plenary session, its passage is highly likely. The FCPA stipulates that the six major sales conduct principles?suitability, appropriateness, duty of explanation, prohibition of unfair sales practices, prohibition of improper solicitation, and advertising regulations?apply to all financial products.

The act also includes grounds for imposing punitive fines of up to 50% of income if the duty of explanation or prohibition of improper solicitation is violated. A new 'right to demand contract termination for illegal contracts' is established, allowing consumers to request the financial company to terminate the contract within a certain period if the company violates sales regulations. The application deadline will be separately determined within a maximum of five years from the contract conclusion.

However, punitive damages and class action lawsuits were not included. Punitive damages require financial companies to compensate victims with amounts far exceeding actual damages if their illegal acts are malicious or antisocial. Class action lawsuits allow some victims to file a lawsuit and, once a judgment is made, extend the effect of the judgment to others who suffered the same damage but did not participate in the lawsuit.

The issue of shifting the burden of proof for proving the financial company's illegal acts from the victim to the financial company has been settled to apply only in cases of intentional or gross negligence violations of the duty of explanation by the financial company.

The FCPA was first proposed in 2011 following the 2008 global financial crisis, with a total of 14 bills introduced, but its passage in the National Assembly was repeatedly delayed. It is analyzed that the large-scale loss incidents such as the DLF and Lime cases last year increased demands for consumer protection, influencing its passage after nine years.

The financial sector is showing growing concerns about the implementation of the FCPA, which has a strong regulatory nature. A representative from a major commercial bank said, "There are already model regulations for consumer protection and various consumer protection measures implemented company-wide, but legalizing measures that go beyond these is a completely different matter," adding, "It is true that we are worried because our business capabilities have already been weakened due to incidents like DLF and Lime."

There are also predictions that banks will focus more on traditional 'interest businesses,' and some expect various disputes over the interpretation of the FCPA provisions to arise.

The amendment to the 'Special Act on Internet-Only Banks,' which is expected to revive K-Bank, South Korea's first internet-only bank currently drifting after halting new loan operations due to funding difficulties, is also likely to pass on the same day. K-Bank plans to overcome its funding shortage by changing its major shareholder to KT and receiving a capital injection of 590 billion KRW, expanding its capital to the 1 trillion KRW level.

The financial authorities announced an internet bank introduction plan in 2015 that allows non-financial businesses focused on ICT to hold up to 50% of internet bank shares, exceeding the previous limit of 4%. The 50% ownership limit was later adjusted to 34% through discussions, and KT planned to increase its stake in K-Bank to 34% to become the largest shareholder based on this. However, it was hindered by the current Internet Bank Act, which disqualifies major shareholders for collusion (violation of the Fair Trade Act). The core of the amendment is to exclude violations of the Fair Trade Act from the disqualification criteria for major shareholders of internet banks.

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