Naver and Kakao Face 50% Punitive Surcharge for Incomplete Sales

Financial Services Commission Announces Legislative Notice for Enforcement Decree of Financial Consumer Protection Act
Financial Consumer Protection Act to Take Effect on March 25 Next Year
‘Internal Control Standards for Consumer Protection’ and Regulations on ‘Financial Product Advisors’ to Take Effect on September 25 Next Year

[Asia Economy Reporter Jo Gang-wook] In the future, big tech companies such as Naver and Kakao will also be subject to the Financial Consumer Protection Act when selling or brokering financial products. Accordingly, in cases of incomplete sales of financial products, punitive fines of up to half of the related income will be imposed. On the other hand, financial consumers will be granted the 'right to withdraw subscription' and the 'right to terminate illegal contracts.'

The Financial Services Commission announced on the 27th that it will give prior notice of the enforcement decree of the Financial Consumer Protection Act, which will be implemented from March next year to establish a foundation for financial consumer protection.

Expansion of Scope... Including Products Handled by Credit Unions, P2P Operators, and Loan Businesses

The draft decree lists as many financial products not explicitly stated in the law as possible, including products handled by credit unions, online investment-linked finance operators (so-called P2P operators), and loan businesses (limited to money lending businesses registered with the Financial Services Commission), to comprehensively cover all products handled by financial sectors in principle for the realization of same function-same regulation.

However, mutual finance institutions such as Nonghyup, Suhyup, Forestry Cooperatives, Saemaeul Geumgo, and post offices are not enumerated in the enforcement decree considering the special nature of their supervisory systems, and plans are in place to prepare supplementary measures promptly through consultations with related agencies.

Registration requirements for loan solicitors and independent advisory firms have been newly established. Considering that 'online' operators are not subject to 'exclusive regulation by one company' unlike 'offline' operators, additional registration requirements such as installing conflict of interest prevention algorithms and depositing a business guarantee of 50 million KRW have been added. Also, for independent advisory firms, registration requirements have been designed at a level similar to those for (non-independent) investment advisory firms under the Capital Markets Act.

Specific contents of internal control standards for consumer protection have also been prepared. In principle, all operators are required to establish internal control standards, and if deficiencies in internal control standards are identified through complaints, Financial Supervisory Service inspections, etc., they must improve the internal control standards themselves. However, agents or brokers exclusively affiliated with one company and small corporations with fewer than five regular employees are exempt from the obligation to establish internal control standards.

Along with this, details of the six major sales regulations including suitability and appropriateness principles, duty to explain, prohibition of unfair sales, prohibition of improper solicitation, advertising regulations, and sales regulation systems related to agent and brokerage businesses have also been improved.

Right to Withdraw Subscription for Loans and Insurance Products... Right to Terminate Illegal Contracts Also Granted

The scope of application for the right to withdraw subscription and the right to terminate illegal contracts has been defined as broadly as possible. The right to withdraw subscription applies in principle to all loan-type and insurance-type products, and for investment-type products, it applies to non-monetary trust contracts, high-difficulty funds*, high-difficulty monetary trust contracts, and high-difficulty discretionary investment contracts. Regarding the right to terminate illegal contracts, it applies in principle to all financial products, but does not apply if the contract is not continuous*, or if there are no property disadvantages such as early repayment fees or penalties upon contract termination.

To enhance the reliability of dispute mediation, the qualifications of experts who can be appointed as members of the mediation committee, such as legal experts and medical specialists, have been specifically defined with experience requirements (more than 15 years). Also, among the 35 members of the mediation committee, to increase fairness in the process of appointing 6 to 10 members attending the mediation committee meetings by the chairman, consumer groups and financial industry groups will nominate an equal number of members.

Regarding punitive fines and the limit on fines imposed, it is set within 50% of the 'income or equivalent amount' (income, etc.) obtained from the violation. To impose sanctions commensurate with the degree of violation, 'income, etc.' is defined by product type as the transaction amount that is the purpose of the contract. Investment products are defined by investment amount, and loan products by loan amount, so that the larger the transaction scale, the stronger the sanctions.

The Financial Services Commission plans to conduct a 40-day prior notice period from the 28th to December 6th, and if necessary, will separately organize and post frequently asked questions (FAQ). Also, supervisory regulations, which are subordinate rules of the enforcement decree, are scheduled to be announced in December.

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