[Financial Consumer Protection Act Q&A] What Should Sellers Do When Consumers Want Unsuitable Financial Products?

[Asia Economy Reporter Park Sun-mi] Following the recent approval of supervisory regulations on financial consumer protection by the Financial Services Commission, all subordinate regulations for the Financial Consumer Protection Act (hereinafter referred to as the FCPA), which is set to be enforced on the 25th, have been completed. Below is a summary of the '2nd Q&A' provided by the financial authorities regarding the FCPA.

Q. Under the suitability principle, if a consumer is found to be unsuitable for a financial product but still wishes to purchase it, can the contract be signed after receiving a confirmation of unsuitability?

A. The suitability principle stipulates that sellers must not recommend products unsuitable for the consumer after verifying consumer information. Recommending unsuitable products through methods such as providing fund catalogs and obtaining a confirmation of unsuitability from the consumer before contracting can be considered a violation of the suitability principle.

However, if the seller recommends a suitable product after verifying consumer information, but the consumer specifically applies for an unsuitable product, and if that product falls under the scope of the appropriateness principle, the contract can be concluded after informing the consumer of the unsuitability in accordance with the law.

Q. Regarding the suitability principle, how should the consumer's 'understanding of the financial product' be assessed?

A. It can be objectively confirmed through questions that assess whether the consumer has the basic knowledge necessary to understand the explanation of the financial product. However, questions relying on the consumer's subjective opinion, such as "Do you think you have sufficient knowledge?" should be avoided.

Q. For public offering funds, if a simplified investment explanation document is provided to the consumer, is it unnecessary to provide the explanation document required under the FCPA?

A. If all matters required to be explained under the FCPA are included in the simplified investment explanation document as stipulated by the FCPA supervisory regulations, then providing a separate explanation document under the FCPA is unnecessary.

Q. Do advertisements created before the law's enforcement fall under the FCPA?

A. Since there are no separate transitional measures or application cases in the FCPA, advertisements using materials created before the law's enforcement are subject to the advertising compliance requirements under the FCPA.

However, the obligation for financial product sales agents and brokers to obtain confirmation from direct financial product sellers when advertising financial products may be exempted for advertisements created before the law's enforcement, considering the early stage of the system implementation and potential market confusion caused by retroactive application of regulations to past financial product advertisements.

Q. When should it be determined whether a consumer is a general financial consumer eligible to exercise the right of withdrawal?

A. According to Article 46, Paragraph 1 of the FCPA, which states that "a general financial consumer who has applied for a contract may withdraw the application," the determination should be based on the time the consumer applied.

Q. What is the relationship between the right of withdrawal and the 'Investor Cooling-off System' under the Capital Markets Act?

A. When both the right of withdrawal and the 'Investor Cooling-off System' under the Capital Markets Act apply (e.g., recommending high-difficulty financial investment products to elderly consumers), the consumer can exercise the right of withdrawal for up to 9 days after application. Before contract conclusion, the cooling-off period guaranteed under the Capital Markets Act allows the consumer to confirm the application status from the day after the application up to 2 days. After contract conclusion, the consumer can withdraw the contract for up to 7 days under the FCPA.

Q. For closed-end private equity funds where early redemption is not possible, can the right to terminate an illegal contract be exercised?

A. In the case of closed-end private equity funds, if the consumer exercises the right to terminate an illegal contract, the direct financial product seller must purchase the relevant collective investment securities with their own assets.

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