[Initial Timing] About One Month Before the Enforcement of the Financial Consumer Protection Act...

March 25 Enforcement of the Financial Consumer Protection Act (FCPA)
Increased Activity in the Financial Sector
Must Demonstrate Capability to Identify the Devil in the Details

[Asia Economy Reporter Park Sun-mi] The inaugural year of consumer protection. If you ask financial company executives what 2021 means to them, most would likely answer this way.

The financial sector is bustling with activity ahead of the enforcement of the Financial Consumer Protection Act (FCPA) on the 25th of next month. Hana Bank has institutionalized the product knowledge obligation system, the first in the industry, allowing only employees who have thoroughly understood the product details to sell the products. CEO Ji Sung-kyu personally wrote a pledge emphasizing that financial consumer protection is a core value and expressing a commitment to realizing true consumer protection, which he publicly announced to employees. Shinhan Bank is conducting on-site inspections through its own mystery shopping, and Woori Bank is preparing to introduce an AI-based complete sales solution for financial products in partnership with KT.

The financial authorities are also tightening preparations as the enforcement of the FCPA approaches. The Financial Supervisory Service has significantly expanded its Financial Consumer Protection Division through organizational restructuring, and the Financial Services Commission has been operating a joint “FCPA Enforcement Preparation Task Force” with the Financial Supervisory Service and related agencies since this month to address industry difficulties.

The FCPA stipulates that the six major sales principles?▲suitability principle ▲appropriateness principle ▲duty to explain ▲prohibition of unfair sales practices ▲prohibition of improper solicitation ▲prohibition of false or exaggerated advertising?which previously applied only to some financial products such as funds and variable insurance, will be expanded to apply to all financial products. For example, bank employees cannot coerce customers who come to take out loans into contracts for other financial products or make unreasonable collateral demands. Violations will incur “punitive fines.”

To protect financial consumers’ rights, the “right of withdrawal” allows consumers to cancel contracts within a certain period after signing and requires sellers to return any money or goods already received. If a financial company violates any of the six sales principles, consumers have the “right to terminate illegal contracts” within up to five years. If there is a risk of significant financial damage to consumers, the Financial Services Commission can issue orders to restrict product sales.

The financial sector’s preparations for the FCPA reflect painful self-reflection following a series of private fund scandals such as Lime, Optimus, and Discovery Fund, which have left the industry with the stigma of incomplete sales. There is also a strong will to restore lost trust through strengthened consumer protection. It is also an opportunity for a turnaround. This is why it is difficult to say that the FCPA is a law that benefits only consumers without listening to the voices from the financial sector.

Both financial companies and consumers will experience considerable “growing pains” during the implementation of the FCPA. Due to the measures put in place to prevent incomplete sales, product sales may take excessively long, which could increase fatigue among frontline employees and customers. Ambiguous clause interpretations that emerge during the application of the law may even provoke more frequent disputes between financial companies and consumers that did not previously exist.

Whether the FCPA, which focuses on preventing consumer damage from incomplete sales of financial products, can function well depends on how effectively various “loopholes” are blocked and how appropriately these initial “growing pains” are managed. The devil is in the details. We hope that the financial authorities, who have not shied away from various responsibility avoidance controversies, will devote their capabilities to identifying the devil hidden in the details so that the newly launched FCPA can sail smoothly.

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