"To Enhance the Effectiveness of Financial Product Sales Restriction Orders, Strengthening the Capabilities of Financial Authorities is Necessary"

"The Importance of Supervisory Authorities' Capability to Acquire and Analyze Information on Financial Products and Markets"

[Asia Economy Reporter Park Sun-mi] It has been pointed out that in order to enhance the effectiveness of the financial product sales restriction order system, which will be implemented in March next year, the evaluation capabilities of the financial supervisory authorities must be strengthened.

Senior Research Fellow Lee Gyu-bok of the Korea Institute of Finance stated in a recent report, "To effectively implement interventions on financial products and sales from a proactive and preventive perspective, it is crucial for supervisory authorities to continuously acquire and analyze information about financial products and markets."

Under the Financial Consumer Protection Act (hereinafter referred to as the FCPA), scheduled to be enforced from March next year, the financial product sales restriction order system will be newly established as a measure the Financial Services Commission can take before financial consumers' damages become visible. Article 49, Paragraph 2 of the FCPA stipulates that if it is clearly recognized that there is a risk of significant financial damage to consumers caused by a financial product, the financial product sales business operator selling the product may be ordered to prohibit solicitation for contract conclusion or to restrict or prohibit contract conclusion for the relevant financial product.

Research Fellow Lee explained, "The financial product sales restriction order is based on the temporary product intervention system granted to the Financial Conduct Authority (FCA) in the UK after the global financial crisis. Transparency in the implementation procedures was enhanced to secure the system’s credibility, ensuring that the development or sales of financial products are not suppressed by the system. Since it is a proactive and preventive intervention, the analysis and evaluation capabilities to timely identify problems were strengthened."

He emphasized, "For Korea to enhance the effectiveness of the financial product sales restriction order system after its implementation, it is necessary not only to establish procedural transparency in supervisory regulations but also to cultivate the financial supervisory authorities’ information analysis and evaluation capabilities. Additionally, similar to the UK, if complaints arise regarding contracts concluded in violation of the order after its enforcement, it is necessary to prepare standards on whether such contracts falling within the scope of the Financial Services Commission’s order can be restored through compensation without a separate proof process."

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