[Q&A] "Explain All Important Matters When Recommending Financial Products... Degree and Method Can Be Adjusted"

Financial Authorities Establish 'Guidelines for the Reasonable Fulfillment of Financial Product Explanation Obligations'

Eun Sung-soo, Chairman of the Financial Services Commission, is visiting the KB Kookmin Bank Gwanghwamun Comprehensive Financial Center in Jongno-gu, Seoul, listening to bank employees about the current status of the Financial Consumer Protection Act.

[Asia Economy Reporter Kwangho Lee] On the 14th, financial authorities established the "Guidelines for the Rational Implementation of Financial Product Explanation Obligations" to reduce confusion at sales counters following the enforcement of the Financial Consumer Protection Act. Accordingly, financial product sellers must explain all important matters listed in the Financial Consumer Protection Act to general financial consumers when recommending products. However, for the rational implementation of the explanation obligation, the degree and method of explanation can be adjusted based on standards internally established.

The financial authorities plan to establish a continuous supplementation system by next month to ensure the timeliness and effectiveness of the guidelines. The guidelines will be continuously improved based on domestic and international best practices related to financial product explanations, analysis of complaints and dispute cases, and the Financial Supervisory Service’s supervision and inspection results. Additionally, by December, plans to strengthen financial education related to financial transaction methods will be prepared.

The following are key Q&A contents related to the guidelines.

- Regarding whether a recruiter can explain only part of the matters required by law in relation to financial product contracts

▲ Whether the explanation obligation is fulfilled is judged based on the entire contract process, so it is not necessary that all explanations be given at the intermediary stage. If the intermediary explained only part of the matters required by law for the financial product, but the direct seller explained the rest, it can be considered that the explanation obligation was fulfilled. However, the scope of explanation obligation fulfillment between the direct seller and the recruiter should be reflected in internal control standards.

- Whether financial products exempt from the obligation to prepare a securities registration statement under the Capital Markets Act are exceptions to the obligation to provide explanatory documents

▲ Except for cases enumerated in subordinate regulations according to the proviso of Article 19(2) of the Financial Consumer Protection Act, exceptions to the obligation to provide explanatory documents are not recognized. Even financial products exempt from the obligation to prepare a securities registration statement under the Capital Markets Act are not exceptions to the obligation to provide explanatory documents.

- Whether providing explanatory documents only in electronic form satisfies the explanation obligation

▲ Sellers can choose one of the methods listed in Article 14(3) of the Enforcement Decree of the Financial Consumer Protection Act to provide explanatory documents.

- Whether displaying explanatory documents on electronic devices such as mobile applications (apps) or tablets can be considered as providing explanatory documents

▲ Only if the explanatory document provided at the time of contract conclusion is identical in content (without alteration or forgery) and the consumer can always view the electronic document through the electronic device, it can be considered as providing explanatory documents.

- Whether a sales employee’s signature is required when providing explanatory documents as contract documents without fulfilling the explanation obligation

▲ When explanatory documents are provided as contract documents without fulfilling the explanation obligation, the sales employee’s signature obligation under Article 14(2) of the Enforcement Decree of the Financial Consumer Protection Act does not apply.

- Regarding the obligation of sales employees to sign on the explanatory documents confirming "the explanation content and the explanatory document are identical," whether this is required when providing explanatory documents electronically

▲ Except for cases falling under any of the subparagraphs of Article 14(2) of the Enforcement Decree of the Financial Consumer Protection Act, there is no exception.

- Regarding the obligation of sales employees to sign on the explanatory documents confirming "the explanation content and the explanatory document are identical," whether the signature must be made only after the explanation is completed

▲ The reason for requiring sales employees to sign the explanatory documents is to secure the responsibility of the sales employee for the explanation content. Within the scope that does not deviate from the purpose of the system, it is possible to provide the signature before the explanation.

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