[Seungseop Song's Financial Light] Why Is the Financial Sector Nervous About the Financial Consumer Protection Act?

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[Asia Economy Reporter Song Seung-seop] With the enforcement of the Financial Consumer Protection Act (FCPA) just 4 days away on the 25th, the banking sector appears to be busy. They are increasing manpower and conducting training for all employees. Why are banks concerned about the enforcement of the FCPA?

The core of the FCPA is the expansion of the ‘6 major sales regulations’ to all financial products. The 6 major sales regulations refer to the suitability principle, appropriateness principle, duty to explain, prohibition of unfair business practices, prohibition of improper solicitation, and prohibition of false or exaggerated advertising. Financial companies cannot recommend financial products that are unsuitable for the consumer’s financial situation and investment propensity, and if a product is unsuitable, the financial company must inform the customer.

Until now, the 6 major sales regulations applied only to some financial products, but from the 25th, all financial products will be subject to the same regulations. If the law is violated, a ‘punitive surcharge’ of up to 50% of the product sales amount must be paid. Employees who sold the products can also be fined up to 100 million KRW. Additionally, if a consumer claims damages due to inadequate explanation when subscribing to a product at a financial company, the financial company is responsible for proving intent or negligence.

In other words, the scope of responsibility that financial companies must bear to protect consumers has expanded, and the penalties banks face if they fail to properly fulfill these responsibilities have increased. Excessive regulations may also lead to a contraction in business from the financial companies’ perspective.

Consumers can also exercise the right to cancel illegal contracts. The right to cancel illegal contracts allows consumers to request contract cancellation within 5 years if the financial product contract violates sales regulations. This applies when the suitability principle, appropriateness principle, or duty to explain is violated, or in cases of unfair business practices or improper solicitation.

If a financial product seller receives a cancellation request, they must notify acceptance or rejection within 10 days. If they refuse, they must also provide the reasons. If the seller does not comply with a legitimate request, the contract is canceled. Even closed-end private equity funds, which are products that cannot be redeemed early, can be canceled if the contract is illegal.

The right of withdrawal and the right to request document inspection are also granted to consumers. The right of withdrawal allows consumers to withdraw their contract application for a financial product within a certain period. This right, previously applied only to investment advisory services and insurance, has now been expanded to all financial products. Consumers can express their intention to withdraw to the financial company within the period specified for each product.

The right to request document inspection allows consumers to request access to related documents from financial companies for the purpose of dispute resolution or litigation to protect their rights. Financial product sellers have the obligation to maintain and manage documents related to contract conclusion and execution, advertising, and exercise of rights. After the enforcement of the FCPA, unless there is a legitimate reason, financial companies must comply with consumers’ requests.

In response to strengthened regulations, the banking sector is busy preparing countermeasures. KB Kookmin Bank has formed a task force (TF) to prepare for the enforcement of the FCPA, centered on the Consumer Protection Department, Legal Office, and each product department. Shinhan Bank has conducted a comprehensive review of the financial consumer protection system and is working on selecting related internal regulations. Hana Bank has reorganized its structure and established a ‘Consumer Risk Management Group.’

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