Implementation of the Financial Consumer Protection Act Approaching... "Advertisement or Brokerage?" Confusion Intensifies

Implementation of Six Major Sales Regulations Including Prohibition of False and Exaggerated Advertising
Punitive Surcharges Imposed Up to 50% of Imports

[Asia Economy Reporter Oh Hyung-gil] With the Financial Consumer Protection Act (FCPA) set to take effect on the 25th, the insurance industry is busy preparing countermeasures.

Among insurance products, some, like automobile insurance, allow consumers to directly choose the insurer, but since most policies are purchased through recommendations from agents, compliance with sales procedures during the insurance sales process is considered especially important.

According to the financial industry on the 20th, the FCPA newly enforces six major sales regulations: the suitability principle, appropriateness principle, duty of explanation, prohibition of unfair sales practices, prohibition of improper solicitation, and prohibition of false or exaggerated advertising.

Recently, through the second Q&A (FAQ) materials released by the Financial Services Commission and the Financial Supervisory Service ahead of the FCPA enforcement, it was explained that "in the case of direct sellers such as insurance companies, since there are no separate transitional measures or application cases under the FCPA, if previously created advertisements are used for advertising, the compliance requirements under the FCPA for advertisements apply."

This means that advertisements created before the enforcement of the FCPA are also subject to the FCPA, and to continue posting or using these advertisements, prior review must be newly obtained and financial product advertising compliance requirements must be followed.

However, an exception is recognized for past advertisements posted by insurance agency (GA) agents on personal YouTube, blogs, or cafes, so they do not have to be deleted one by one.

[Image source=Yonhap News]

Up to 6-Month Grace Period Applied for Five Regulations Including Preparation of Core Explanation Documents

Additionally, financial authorities explained the classification of business activities such as 'advertising,' 'intermediation,' and 'advisory services' in financial transactions conducted through non-face-to-face platforms.

Posting product information or simple banners linking to products to attract unspecified many for financial transactions is considered advertising.

For example, sending an email to all credit card members introducing a new financial product is advertising, and a product seller responding free of charge to inquiries about specific financial products via website or phone is considered guidance or solicitation.

However, activities supporting contract conclusion with a financial product seller along with product recommendation and explanation, supporting the preparation and submission of financial product application documents, or providing personalized advertisements to specific individuals are regarded as intermediation.

Acts of responding to advisory requests to gain profit without being a financial product seller and recommending products to the consumer in return for compensation are judged as advisory services.

Accordingly, if one's work is classified as intermediation, registration application must be submitted with the required qualifications starting from July.

Also, recommending unsuitable products such as providing fund catalogs because the consumer requests it, and contracting after receiving a confirmation of unsuitability from the consumer, is considered a violation of the 'suitability principle' and is prohibited.

The suitability principle is a rule that prohibits sellers from recommending products unsuitable for consumers after confirming consumer information. Regarding this principle, when confirming the consumer's 'understanding of financial products,' it must be judged based on objective questions.

Meanwhile, if the six major sales regulations are violated, punitive fines of up to 50% of related income may be imposed, and the selling employee may be fined up to 100 million KRW. However, financial authorities have decided to apply a grace period of up to six months for five regulations requiring industry preparation time, such as mandatory establishment of internal control standards including system construction, preparation of core explanation documents, and setting risk grades for investment products.

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