Over One Hour for Product Enrollment with Non-Face-to-Face Inducement... Consumer Inconvenience Due to Regulatory Expansion (Comprehensive)

100 Days Until the Enforcement of the Financial Services Act
Voices from the Field Filled with Complaints and Side Effects

[Asia Economy Reporters Sunmi Park, Hayoung Ki, Hyojin Kim] Kim Minyoung (42), who visited a bank branch to sign up for an Individual Retirement Pension (IRP), wanted to choose a fund as the investment product but had no choice but to put cash-equivalent waiting assets. This was due to the staff’s recommendation that, because of the Financial Consumer Protection Act (FCPA), it would take 1 hour and 30 minutes to include a fund in the IRP account, so she should first subscribe to cash assets and then switch to a fund through the bank’s application (app). In the end, Kim had no choice but to make an ‘incomplete choice’ by selecting a fund on her own without receiving any product recommendation or explanation.

The FCPA, enacted to protect the rights and interests of financial consumers, will mark 100 days since its enforcement on the 2nd of next month, but side effects continue to emerge in the field. Only two of the five originally planned guidelines by financial authorities have been completed, leading to a surge in non-face-to-face product subscriptions to shorten product explanation time and loan cancellations abusing the right of withdrawal. Experts warn that if the issues in the field are not resolved promptly, the FCPA could degenerate into a ‘regulation for regulation’s sake,’ completely losing its purpose and effectiveness.

According to the financial sector on the 30th, right after the FCPA enforcement in April, the proportion of online sales of financial products at major commercial banks such as Shinhan, Woori, Hana, and IBK Industrial Bank of Korea exceeded an average of 70%. This is analyzed as an effect of frequent encouragement of non-face-to-face product subscriptions at branches to shorten product explanation time after the FCPA enforcement.

There are criticisms that the FCPA, introduced to prevent the entrenched practice of incomplete sales, has ironically become a pretext to induce non-face-to-face subscriptions. As a result, while the responsibility of individual consumers for financial product subscriptions has increased, the interactive communication possible in face-to-face subscriptions has become impossible, causing side effects where consumers subscribe without an accurate understanding of the products.

A representative from a commercial bank said, "Because of the FCPA, customer service time has lengthened, so we have no choice but to recommend app-based services to younger customers who find internet use easier," adding, "From the staff’s perspective, they prefer non-face-to-face sales because they do not have to bear responsibility for incomplete sales."

The abuse of consumers’ right of withdrawal and illegal contract termination rights due to change of mind is also problematic. There are numerous cases where consumers in urgent need of funds abuse the right of withdrawal, which allows free cancellation within a certain period, by taking out a credit loan, using the funds, and then requesting cancellation of the loan contract to get the fees refunded.

An employee at Bank A’s Yeouido branch said, "Especially during periods when short-term fund demand surges due to public offering subscriptions, there are many cases where customers take out credit loans and then cancel the loan contract using the right of withdrawal when the subscription money is refunded," adding, "Even if abuse is suspected, the bank must accept cancellation requests 100% because of the FCPA." The insurance industry also voiced concerns, saying, "Since the illegal contract termination right may lead to an increase in insurance cancellations in the future, it is necessary to prepare specific procedures to respond to customers’ illegal contract termination requests."

Although financial advertising regulation guidelines have been created, frontline insurance planners express dissatisfaction and question the effectiveness of the strengthened advertising review. According to the FCPA, financial advertisements must undergo internal review and prior review by each financial industry association, but in reality, there are virtually no planners who receive prior review and post product information on blogs or social network services (SNS). Some planners adopt a detour strategy by explaining products through closed channels such as internet community messages to avoid advertising review.

Must Not Degenerate into ‘Regulation for Regulation’s Sake’

Experts unanimously voiced concerns about the confusion arising in the financial field since the enforcement of the FCPA.

Professor Sung Tae-yoon of Yonsei University’s Department of Economics said in a phone interview on the 30th, "It is clearly a big problem that excessively inefficient and formal procedures that do not greatly help consumer protection are increasing," adding, "Instead of maintaining long and cumbersome consent procedures, policy research that can practically protect financial consumers is needed."

Researcher Lee Seong-bok of the Korea Capital Market Institute said, "With the expansion and establishment of regulations, financial consumers experience procedural inconveniences, and financial companies shift some regulatory costs by encouraging customers to use non-face-to-face channels." He pointed out that it is difficult to judge whether non-face-to-face channels comply with suitability principles or explanation obligations. He expressed concern, saying, "If financial consumers cannot easily distinguish differences between product advertising, searching, recommendation, brokerage, and direct sales in non-face-to-face channels, they may find it difficult to assert their rights."

Experts warn that if the issues in the field are not resolved promptly, the FCPA could degenerate into a ‘regulation for regulation’s sake,’ completely losing its purpose and effectiveness.

An official from the financial sector involved in preparing guidelines for financial companies following the FCPA enforcement said, "There are regulations or items that are obviously inconvenient and inefficient but impossible to overcome," emphasizing, "In such cases, the authorities need to provide some breathing room to allow more flexible interpretation and discretion."

Senior Researcher Lee Gyubok of the Korea Institute of Finance argued, "Currently, financial authorities respond by answering inquiries from financial companies, but they should take a more proactive approach by analyzing product sales cases and the market and suggesting improvements." He advised, "While sufficiently reflecting differences in sales channel methods (face-to-face, non-face-to-face, etc.), a regulatory system should be created so that there is no difference in the level of regulation."

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