"Punitive Damages Up to 5 Times for Mis-selling Funds and Insurance?"... Financial Sector 'Stunned' (Comprehensive)

Government Announces Legislation on Class Action and Punitive Damages
Concerns Over 'Frivolous Lawsuits' Even for Legitimate Products
Worries About Business Contraction Amid Financial Sector's Successive Regulatory Tightening

On the 16th, when the Financial Supervisory Service's Disciplinary Committee regarding the overseas interest rate-linked derivative-linked fund (DLF) incident, which caused large-scale principal losses, was held, members of the DLF Victims Countermeasures Committee and the Financial Justice Solidarity held a press conference in front of the Financial Supervisory Service in Yeouido, Seoul, demanding severe disciplinary actions against Woori Bank and Hana Bank. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporters Hyungil Oh, Minyoung Kim] "If a single product is poorly made or a sales employee makes even a minor mistake, even a large financial institution can collapse. The purpose is consumer protection, but if a bank fails, who will take responsibility for the resulting chaos?" (Executive at A Financial Group).

The government’s decision to expand the 'class action system,' previously limited to securities, to all sectors and to include 'punitive damages' in the Commercial Act has become a pressing issue for the financial sector.

Since the 21st National Assembly began emphasizing consumer protection, a series of bills tightening regulations on the financial sector have been proposed. Adding class actions and punitive damages means excessive liability could be imposed on financial companies. If a listed financial company loses a class action lawsuit, it may have to pay damages to almost all shareholders, potentially resulting in astronomical compensation amounts.

According to the financial sector on the 24th, the 'Class Action Act' and 'Commercial Act Amendment,' which the Ministry of Justice announced would be legislatively notified on the 28th, are expected to be implemented alongside the Financial Consumer Protection Act starting next March, tightening regulations on all aspects of financial companies’ management activities.

The main content of the Class Action Act expands the class action system, which had been limited to the securities sector, to all industries. Introduced in 2005, the class action system allows all victims to be compensated through a lawsuit filed by some representatives of the victims.

Once the Class Action Act is introduced, any damages claim lawsuit with more than 50 victims can be subject to class action. The judgment will apply to all victims who do not file an exclusion notice. In other words, many victims can receive relief without directly filing or participating in the lawsuit.

Considering that ordinary victims find it difficult to obtain evidence documents against companies, the order for submission of materials has also been strengthened. If there is no justifiable reason to comply, the court may recognize the applicant’s factual claims as true. To reflect social opinions, citizens will participate as jurors in first-instance cases.

[Image source=Yonhap News]

Path Opened for Large-Scale Financial Consumer Damage Relief but
Concerns Over 'Frivolous Lawsuits' Even for Properly Sold Products

With the possibility of class actions for collective consumer damage cases, a path to compensate consumer damages has opened.

However, the financial sector points out that there could be side effects of rampant 'indiscriminate lawsuits' even for products sold through proper procedures.

A B Bank official said, "If sales companies operate product selection committees or follow proper procedures to prevent incomplete sales, but lawsuits or compensation claims are still filed for losses on those products, management activities will inevitably be restricted. This directly contradicts the principle of investor responsibility and may lack legal consistency," expressing frustration.

In particular, since retroactive application is planned even for cases occurring before the law’s enforcement, it is expected to affect issues such as the Lime Asset Management scandal, private fund mis-selling, and derivative-linked fund (DLF) incidents.

Alongside this, the government plans to introduce a punitive damages system into the Commercial Act. If a financial company causes damage to others through intentional or gross negligence, it must compensate up to five times the damage.

The insurance sector, where disputes with consumers are frequent, strongly opposes this, saying that sales activities from agents to insurance payouts will be greatly restricted. With ongoing complaints about incomplete sales, the introduction of punitive damages could lead to closures due to compensation burdens.

An insurance company official said, "Regulations are increasingly tightening, such as granting unilateral binding force to recent dispute mediation committee decisions and the ruling party’s push for the Financial Group Integrated Supervision Act. Even when the insurance industry submits opinions to the government or ruling party, they are not accepted or improved, which is frustrating," he lamented.

Meanwhile, some argue that as consumer rights increase, measures against 'black consumers' should also be strengthened. Currently, the Financial Services Commission plans to prepare institutional improvement measures to alleviate social burdens caused by financial black consumers.

Victims of Lime Asset Management funds held a press conference on the 21st in front of the Seoul Southern District Prosecutors' Office in Yangcheon-gu, Seoul, urging "prompt investigation by the prosecution." The victims filed a complaint with the Seoul Southern District Prosecutors' Office against the head of Daishin Securities Banpo WM Center on charges including fraud under the Act on the Aggravated Punishment of Specific Economic Crimes and fraudulent trading under the Capital Markets Act. Photo by Yoon Dong-ju doso7@

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