Fund Subscriptions and Face-to-Face Transactions Decline, Leading to Sharp Drop in Bank Complaints (Comprehensive)

Last Quarter of Last Year Sees 572 Financial Complaints, a 30% Sharp Drop from Previous Year
Lime and Optimus Scandal Resolution Begins, Related Fund Transactions Decrease
Industry Struggles to Prepare Measures Against Potential Complaint Increase Ahead of Financial Consumer Protection Act

[Asia Economy Reporter Song Seung-seop] In the fourth quarter of last year, complaints related to financial transactions received by banks and the Financial Supervisory Service (FSS) reached the lowest level since statistics began. This is attributed to a decrease in investment product transactions following the Lime and Optimus private equity fund scandals, as well as a significant drop in visits to offline branches due to the spread of non-face-to-face transaction culture.

According to the Korea Federation of Banks on the 10th, the number of complaints received by financial companies and the FSS in the fourth quarter of last year was 572, the lowest since the first quarter of 2015 when statistics were first disclosed. This represents a decrease of about 30% compared to 806 complaints in the same period last year and an 11.46% (74 cases) drop compared to the previous quarter.

By product type, other complaints related to complex product sales such as electronic finance, funds, and bancassurance were the most common at 240 cases. Loan-related complaints followed with 166 cases, deposit-related complaints numbered 86, and credit card-related complaints were 67. Foreign exchange-related complaints were the fewest at 13 cases.

Among the four major banks (KB Kookmin, Shinhan, Hana, and Woori), Woori Bank showed the largest decrease. The number of complaints at Woori Bank was 74, down 69.79% from 245 cases a year earlier. Compared to the third quarter, it also decreased by 28.16% (29 cases).

Complaints received by Hana Bank also nearly halved from 126 to 63 cases. Quarterly, it dropped from 98 cases by 35.7%, showing the steepest decline. Shinhan Bank saw a decrease of about 9.92% to 109 cases in the fourth quarter, while Kookmin Bank had a 2.46% decrease to 119 cases.

The financial complaints that surged due to the Lime and Optimus scandals appear to have subsided as the Dispute Mediation Committee and the Sanctions Review Committee proceeded. Hana Bank, which sold Lime Asset Management’s trade finance funds and served as the custodian for Optimus funds, saw a significant increase in complaints starting in 2019. Woori Bank also faced strong protests from investors after selling large amounts of Lime funds.

In response, financial authorities began earnest efforts to resolve the private equity fund crisis in the second half of last year, and banks partially accepted these measures. In August last year, Hana Bank and Woori Bank abruptly accepted the FSS’s dispute mediation proposal of “full compensation of investment principal,” returning 36.4 billion and 65 billion KRW respectively to investors. This was the first time the Dispute Mediation Committee recommended 100% compensation. CEOs of each affiliate also showed a strong commitment to resolving the crisis and protecting consumers.

Private Equity Fund Popularity Drops After Lime and Optimus Scandals, Complaints Plummet

It is also analyzed that the financial sector’s reluctance to sell related products and consumers’ hesitation to purchase after the Lime and Optimus scandals contributed to the decline. Complaints decreased as transactions themselves declined due to risk concerns.

According to the Korea Financial Investment Association, the balance of derivative-type private equity fund sales dropped monthly from 31.8954 trillion KRW on October 2019 to 22.9835 trillion KRW by the end of last January, a decrease of over 38%. This contrasts with an increase in bond or real estate-related fund products and a slight rise in public fund balances. Due to the growing aversion to private equity funds, other complaints related to fund and financial product sales also sharply decreased from 420 in the fourth quarter of 2019 to 240 currently.

A financial industry official explained, "In the case of Woori Bank and Hana Bank, the overall market likely shrank as they suspended private equity fund sales for a certain period," adding, "New private equity fund transactions are still insufficient, so complaints related to them are rarely received over time."

There is also an opinion that the sharp drop in visits to physical branches due to COVID-19 contributed. Typically, complaints within the financial sector are 2 to 3 times higher internally than those reported externally to financial authorities. However, the difference between internal complaints (292 cases) and external complaints (280 cases) is narrowing. This is explained by the increase in non-face-to-face and digital financial demand, reducing branch visits.

According to the Bank of Korea, as of the first half of 2020, 164.79 million people were registered for domestic internet banking services, including mobile banking. The number and amount of inquiries, fund transfers, and loan application services using these increased by 25.5% and 10.9% respectively compared to the second half of the previous year.

Meanwhile, commercial banks are preparing countermeasures fearing that complaints may surge again ahead of the enforcement of the Financial Consumer Protection Act.

KB Kookmin Bank is checking the current status through a task force (TF) centered on each product department and is establishing a consumer protection system. They are also strengthening complex and high-difficulty investment product subscription procedures to eliminate risks of incomplete sales.

Woori Bank is operating a non-face-to-face training program to enhance the capabilities of all employees. A representative example is the production of video content on key points of the Financial Consumer Protection Act through its own knowledge-sharing platform ‘WeTube.’ All sales divisions plan to conduct video training to educate on changes in sales sites and essential compliance requirements following the Act’s enforcement.

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