End of Financial Consumer Protection Act Grace Period on 24th... How Far Has the Financial Sector Prepared? (Comprehensive)

Former Financial Sector's 'First Violation of Geumso Act' Nickname Avoided with Final Efforts

[Asia Economy Reporters Sunmi Park, Hayoung Ki, Seungseop Song] "Even after the Financial Consumer Protection Act (FCPA) grace period ends on the 24th, it may be difficult to resume sales of open-ended high-risk products such as leverage inverse funds due to issues like customer guidance on the cooling-off system and product value deterioration caused by price fluctuations." - A major commercial bank

As the six-month grace period for the FCPA ends on the 24th, the entire financial sector is making last-minute efforts to avoid being labeled as the 'first violator' of the FCPA. However, despite final internal system adjustments to comply with the FCPA as required by the authorities, there is a growing complaint that it is unclear what can be done during the grace period, forcing institutions to handle operations conservatively to avoid sanctions for FCPA violations.

According to the financial sector on the 13th, major commercial banks shared a common view that even after the FCPA grace period ends on the 24th, there will be no significant changes from the preparations made before the FCPA enforcement date on March 25th. This is because many parts of the authorities’ guidelines remain unclear, leaving little that could be prepared during the grace period.

The sales of high-risk products, which had been blocked, still have no solution, so the suspension of sales is expected to continue. Additionally, the investment product key fact sheets that must be provided to customers have not resolved issues caused by their vast scope and volume, resulting in ongoing inconvenience for both banks and customers.

A representative from a commercial bank said, "During the grace period, guidelines related to the suitability principle and duty of explanation were issued, but there are no effective measures or clear standards, making practical application difficult." He added, "For this reason, even after September 25th, it will be hard to see significant changes from the existing processes." He further explained, "Regarding the investment product key fact sheets, the Financial Supervisory Service and others have not provided any guidelines," adding, "Each distributor lacks the time to produce these key fact sheets, causing difficulties."

In response, the financial authorities explained, "The investment product key fact sheets can be sufficiently prepared by banks by referring to the standard product explanation templates for banks and the duty of explanation guidelines issued in July and August."

Financial Sector: "Financial Authorities’ Responses and Measures Are Principled and Still Ambiguous"

Concerns have been raised that, as each distributor interprets ambiguous legal provisions and practical application methods during the FCPA preparation process, sales procedures that align with the purpose of protecting financial consumers have not been established. Another bank official said, "It is urgent to establish basic practical handling methods and sales procedures through collaboration between financial institutions led by the government and financial authorities," adding, "The authorities’ responses and measures regarding the FCPA are mostly principled."

There are also complaints about difficulties in implementing the three methods (written, internet, text message, and equivalent electronic expressions) for providing contract documents across all channels, as the legal provisions were created without considering the unique characteristics of each product and channel. A bank official said, "The number of contract documents has increased, and the information to be included has also grown, but the amount that can be included in a text message is limited," adding, "The key fact sheets must also cover frequently asked questions and complaints, making it difficult to manage the volume."

In fact, financial companies have made many inquiries to the financial authorities during the grace period regarding ambiguities and uncertainties in the application and interpretation of the FCPA. An official from the authorities said, "For example, joint guarantees are generally prohibited under the FCPA, but exceptions exist, so many inquiries were made by industry sectors presenting cases to check for violations," adding, "Some also asked whether there were any errors in the process of delivering contract documents."

How Far Has the Financial Sector Prepared for the FCPA?

Meanwhile, the financial sector has entered the final stage of minimizing legal risks ahead of the end of the FCPA grace period. KB Kookmin Bank recently strengthened internal control standards for financial consumer protection and simplified the AI financial consultation system’s recording process to improve customer understanding of product explanations and reduce employees’ recording burdens. Woori Bank is currently establishing and revising regulations and operational guidelines such as internal control standards for financial consumer protection and is adjusting systems accordingly. Most banks are also conducting employee training in preparation for the end of the FCPA grace period.

The insurance industry, led by the association, prepared and distributed financial consumer protection standards and internal control standards last month, and individual insurers are revising and establishing their own guidelines. Samsung Life Insurance held a board meeting earlier this month and added financial consumer-related clauses to its internal governance regulations. The main goal is to establish an internal control system and formulate corresponding management strategies and policies. Following Samsung Life Insurance, other insurers are expected to incorporate FCPA-related matters into their internal regulations one after another.

Non-life insurance companies are also expected to establish and implement internal control standards for financial consumer protection through board resolutions by the end of this week. They are holding weekly task force (TF) meetings to prepare a checklist for the practical implementation of the FCPA. The credit card industry’s Credit Finance Association prepared internal control standards related to financial consumer protection by the end of July and notified individual member companies.

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