"Establishment of Dispute Mediation Arbitration Center, Financial Companies Must Unconditionally Follow Mediation Proposals"… National Assembly Bill Proposed

Establishment of an Independent Financial Dispute Mediation and Arbitration Agency Separate from the FSC
If Consumers Accept the Decision, Financial Companies Must Comply
FSC Authority Expected to Be Reduced

President-Elect Yoon Seok-yeol Also Pledges to Strengthen the Independence of the Dispute Mediation Committee
Changes Expected in Financial Dispute Resolution Procedures Following the UK Model

[Asia Economy Reporter Sim Nayoung] A bill has been proposed in the National Assembly to establish a new independent institution responsible for financial dispute mediation and arbitration, introducing a 'unilateral binding force' whereby if a financial consumer accepts the final mediation proposal concluded by this institution, the financial company must unconditionally comply.

According to the National Assembly's Political Affairs Committee on the 24th, Lee Jung-moon, a member of the Democratic Party of Korea, drafted the "Financial Consumer Protection Act Amendment" to protect the rights and interests of financial consumers. During the Moon Jae-in administration, large-scale redemption suspensions and disputes occurred due to the Lime and Optimus private equity fund fraud scandals. Although the Financial Supervisory Service's Dispute Mediation Committee was activated, victims have expressed dissatisfaction, citing excessive delays and inadequate outcomes.

Assemblyman Lee Jung-moon Proposes Amendment to Financial Consumer Protection Act

Assemblyman Lee stated, "As the structure and sales stages of financial products become more complex, accidents and disputes are increasing, but the Financial Supervisory Service has been unable to resolve them promptly, necessitating measures to protect financial consumers' rights and interests." He questioned the effectiveness of dispute mediation. He added, "There are many cases where financial companies reject the mediation proposals of the Dispute Mediation Committee, so the current system fails to provide relief to financial consumers." The amendment includes the establishment of an independent institution called the "Financial Dispute Mediation and Arbitration Institute" to handle such tasks.

Another key point of the amendment is that if a financial consumer accepts a mediation proposal decided by the Arbitration Institute, it will have the same effect as a court settlement regardless of the financial company's consent. This system, called 'unilateral binding force,' grants financial consumers favorable rights in disputes with financial companies. When the financial authorities issue a mediation proposal and the consumer agrees, the financial company must accept it unconditionally. Currently, both parties must accept the proposal for it to be approved, and if one side refuses, a lawsuit must be filed for a legal judgment. A representative from a commercial bank expressed concern, saying, "Disputes inherently require determining right and wrong, so it is problematic to force financial companies to comply with decisions made by an institution that is not the judiciary."

"Conflict of Interest if Financial Supervisory Service Handles Financial Disputes" - Longstanding Debate

If the amendment passes, the Financial Supervisory Service's authority is likely to be reduced. Currently, the chairperson of the Dispute Mediation Committee is appointed by the Financial Supervisory Service Commissioner from among deputy commissioners, but the amendment proposes that the head of the Mediation and Arbitration Institute be appointed by the President after the Financial Services Commission's resolution from among financial experts. President-elect Yoon Seok-yeol has also pledged to strengthen the independence of the Dispute Mediation Committee currently within the Financial Supervisory Service, so the financial sector anticipates inevitable changes in financial dispute resolution procedures.

The argument that the Financial Supervisory Service should be independent in handling financial disputes due to conflicts of interest has long been raised in the financial sector. The Financial Supervisory Service might exert undue pressure on financial companies using its supervisory authority or make decisions unfavorable to consumers out of concern for the financial companies' soundness. There are also calls to introduce a system like in the UK, a financial advanced country, where the dispute mediation body is separated from the supervisory authority and operates independently to mediate disputes.

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