"Terminating Product Contracts" Financial Consumer Protection Act Enforced Today... Temporary Confusion Inevitable

Expansion of the 6 Major Sales Regulations to All Financial Companies and Products
Significant Changes in Product Sales Including Introduction of Withdrawal and Illegal Contract Termination Rights

[Asia Economy Reporter Kiho Sung] From the 25th, the Financial Consumer Protection Act (FCPA) will be enforced. Accordingly, financial consumers will be broadly guaranteed rights such as the right to withdraw subscription and the right to cancel illegal contracts. The banking sector is also increasing vigilance by strengthening employee training to reorganize and prevent incomplete sales.

The FCPA was first proposed to the National Assembly in 2011. However, following a series of incidents such as the overseas interest rate-linked derivative-linked fund (DLF) scandal and the suspension of fund redemptions by Lime Asset Management and Optimus Asset Management, it passed the National Assembly after nine years.

The main contents of the FCPA include ▲transition to a function-based regulatory system ▲expanded application of six major sales principles ▲guarantee of the right to withdraw subscription and cancel illegal contracts for financial consumers ▲securing the effectiveness of dispute mediation procedures ▲strengthening post-sanction measures through punitive surcharges ▲and the legalization of financial education.

In particular, when a financial consumer files a lawsuit for damages against a financial company due to a violation of the explanation obligation, the burden of proof regarding intent and negligence is placed on the financial company. Financial companies that violate this must be subject to punitive surcharges of up to 50% of the product sales amount. Sales staff may also be fined up to 100 million KRW.

Concerns over Passive Sales to Avoid Being the 'First Punishment Target' in an Unprepared Situation

The day after the Bank of Korea abruptly cut the base interest rate to a historic low of 0.75% per annum, a bank counter in Seoul showed a quiet scene on the 17th. Photo by Kim Hyun-min kimhyun81@

Consumers have the right to freely withdraw contracts within a certain period for investment products such as insurance and loan products excluding some like guarantee insurance or linked loans, high-risk financial investment products, high-risk discretionary investment contracts, and some trust contracts.

For insurance products, withdrawal can be made within 15 days from the date of receiving the insurance policy or 30 days from the subscription date, whichever is earlier. For investment and loan products, withdrawal can be made within 7 days and 14 days respectively from the contract date. In this case, since the contract becomes null and void from the time of cancellation, costs such as loan interest or credit card annual fees paid before cancellation cannot be refunded, but additional costs such as penalties do not have to be paid.

Financial companies have the obligation to verify the consumer’s financial situation and transaction purpose when selling financial products, recommend suitable and appropriate products, and explain important matters such as the possibility of profit fluctuations.

Additionally, consumers will have the right to request access to materials from financial companies to respond to dispute mediation or litigation.

Most provisions of the FCPA will be enforced from this day, one year after promulgation, but some regulations, such as the obligation for financial product sellers to establish internal control standards and provisions related to material access requests, will be deferred for up to six months.

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