[Q&A] "Financial Department Store Opens in My Hands"

[Asia Economy Reporter Song Hwajeong] Financial authorities are promoting the activation of platform finance by financial companies and the pilot operation of online platform financial product brokerage. Accordingly, various financial and non-financial services such as banking, insurance, card, and securities will be accessible through financial companies' applications (apps). Additionally, online brokerage services for deposits, insurance, and online investment-linked finance (P2P) products will be piloted. Consumers are expected to benefit from enhanced choice through customized financial product comparison and recommendations, as well as improved convenience in daily life through data- and platform-based integration of financial and non-financial services.

On the 23rd, the Financial Services Commission summarized the activation plan for platform financial services in a Q&A format.

Regarding Brokerage of Platform Financial Products

▲ If brokerage of financial products through online platforms expands, won't financial companies become dependent on the platforms?

= Various safeguards have been established to prevent excessive expansion of platform influence or abuse of dominant positions. First, the scope of online platform operations will be appropriately limited. For insurance, products with high consumer damage risk such as whole life, variable, and foreign currency insurance are excluded. For deposits, real-name verification and deposit acceptance are excluded from the scope, and the product range is limited to fixed-term deposits and savings.

Additionally, various institutional safeguards to prevent unfair practices will be applied. In the insurance sector, platforms are prohibited from demanding terms less favorable than general trading conditions from insurers and must provide prior notice when changing or discontinuing services. Platforms cannot change key algorithm details without prior notice to insurers. Exclusive solicitation of specific platforms or specific insurance products is prohibited among platforms. For deposits, obligations to disclose solicitation performance and commissions will be imposed, and the sales ratio through platforms will be limited by financial company.

Furthermore, since financial companies will entrust platforms with financial product sales solicitation tasks, platforms will be required to manage related risks diligently through financial companies, and this will be monitored.

▲ Since platform algorithm analysis results greatly influence consumers' financial product choices, how will algorithm fairness be ensured?

= Algorithm requirements to prevent conflicts of interest under the Financial Consumer Protection Act (FCPA) will be applied uniformly to all financial products, and fairness will be verified by trusted institutions such as KOSCOM. Additionally, for complex insurance products, further fairness assurance measures will be introduced and operated.

▲ Won't brokerage fees incurred during financial product brokerage through online platforms increase consumer burden?

= Platforms are expected to have lower brokerage costs compared to existing channels due to the nature of online non-face-to-face sales without the need for offline branches. To address concerns that platforms might demand excessive fees based on dominant positions, supplementary measures such as commission caps or disclosure obligations have been established considering product characteristics. For insurance, business expenses and commissions are limited to about half of those in face-to-face channels, and comparisons and disclosures of premiums between platform and CM channels are required. For deposits, solicitation performance and commission disclosure obligations are imposed.

▲ If consumer damage occurs after subscribing to financial products through platforms, who compensates and how?

= In principle, if consumer damage occurs due to the platform's intentional or negligent acts during brokerage, the platform as the broker is liable for compensation. However, consumers can claim damages from both the platform and the financial company under the FCPA.

▲ Won't handling insurance products through online platforms cause conflicts with existing solicitation channels like insurance agencies and reduce agents' income?

= This is a contentious issue among agents, life and non-life insurance industries, insurance agencies, and fintech sectors. In such cases, the priority should be enhancing financial consumer benefits. Accordingly, based on the principle of prioritizing consumer benefits and after sufficiently gathering stakeholders' opinions, alternatives have been devised to enable harmonious competition between platforms and existing solicitation channels. Platforms can only perform comparison and recommendation using big data analytics, while existing channels continue to sell products through agents' professional explanations. Considering platform influence and market impact, pilot operations will be conducted for a certain period under innovative financial services before institutionalization.

Active communication with stakeholders and reasonable alternatives will be pursued throughout the process to minimize conflicts.

▲ MyData operators must compare various big data to recommend suitable products to individual consumers, but won't the range of products they can handle be limited?

= Considering the possibility of consumer damage from platform handling of insurance products, the product range will be limited to coverage products with complex benefits or high risk of mis-selling. For example, products with complex structures or high-value contracts such as whole life, variable, and foreign currency insurance (specific product scope to be decided upon designation as innovative financial services) are included. Overseas cases also limit the range of products platforms can handle considering consumer damage risks. Japan, when introducing new financial service intermediation, restricted handling of variable insurance, foreign currency insurance, whole life insurance, third insurance with basic rate change rights, and high-value contracts requiring professional explanation. However, to enhance consumer choice, platforms will be allowed to handle not only cyber marketing (CM) products but also face-to-face and telemarketing (TM) products.

▲ Unlike bancassurance where push sales occur, is the bancassurance regulation (limiting sales proportion of a specific company to 25%) applied to platforms that only perform comparison and recommendation?

= Considering platform market dominance, exclusive partnerships between platforms and affiliates could cause consumer harm and unfair competition. Specifically, consumer choice could be restricted (biased comparison and recommendation toward affiliate products), and market entry of small and medium insurers could be hindered. Therefore, for large platforms with significant market influence, reasonable regulatory measures will be prepared considering platform characteristics and bancassurance regulations to prevent biased insurance product recommendations toward specific companies.

▲ Why are separate restrictions applied only to platforms, unlike general insurance agencies without sales channel or product limitations?

= Online platforms and general insurance agencies fundamentally differ in product handling scope, customer exposure, and influence, necessitating differentiated regulation. Unlike insurance agencies that sell only insurance products, platforms sell various products including multiple financial products, which may cause conflicts of interest. Platforms also hold vast potential customer information across various industries, giving them dominant market power. While consumers voluntarily access insurance agencies to purchase insurance products, platforms expose consumers to insurance marketing involuntarily, which must be considered. When financial institution insurance agencies were introduced in the past, differentiated regulations were applied considering potential unfair competition due to dominant positions and impacts on existing solicitation channels.

▲ Will excessive regulations be applied equally to small fintech companies as to big tech companies?

= Differentiated regulations will be applied considering differences in market influence and regulatory compliance burdens between big tech and fintech companies. When handling insurance products, business guarantee deposits will be required proportionally to business scale (e.g., contract amounts concluded through comparison and recommendation). Enhanced internal control standards and regulations preventing biased comparison and recommendation toward specific companies (considering bancassurance regulations) will be applied only to large platforms with significant market influence for consumer protection and fair competition.

▲ Why is platform insurance product handling allowed through designation as innovative financial services rather than immediate institutionalization via legal amendments?

= Platforms have enormous market influence due to their vast subscriber base. Therefore, full permission for insurance product handling requires phased pilot operation to anticipate ripple effects and issues. Considering platform influence and market impact, pilot operations will be conducted for platforms recognized as innovative, and institutionalization including amendments to insurance laws will proceed after thoroughly reviewing operational outcomes.

Regarding Online Deposit Product Brokerage

▲ Won't platform deposit brokerage cause excessive fund concentration (money move) to relatively less sound secondary financial sectors?

= This issue has been continuously raised during industry consultations and subcommittee meetings, leading to the establishment of safeguards. Highly liquid demand deposits are excluded from brokerage products. For savings banks and credit unions, which are more numerous and relatively less sound than banks, solicitation limits through platforms are set at 3% (banks at 5%). Deposit products of financial companies subject to prompt corrective action cannot be brokered. During actual operations, management and supervision will ensure that financially vulnerable companies do not excessively attract funds through platforms.

Regarding Activation of Platform Financial Services

▲ If card companies issue terms and conditions electronically instead of in writing when issuing cards, won't elderly customers have difficulty confirming the contents?

= If customers request transaction terms in writing, card companies will provide them immediately in writing. If necessary, consumer protection procedures related to document issuance for transaction terms will be established through guideline revisions for elderly customers.

▲ If rewards for health promotion-type insurance products increase from 30,000 won to 200,000 won, won't this cost be passed on to premiums of other insurance product policyholders?

= According to the 'Health Promotion-type Insurance Product Guideline,' health promotion-type insurance products manage revenues and costs separately from other insurance products. Therefore, it is expected that the burden will not be passed on to premiums of other insurance product policyholders.

Regarding Strengthening the Regulatory Sandbox

▲ Won't limiting the scope of exemptions dampen innovation momentum?

= The purpose of limiting the scope of exemptions is to enhance the stability and predictability of the regulatory sandbox system so that businesses, consumers, and investors can confidently and actively utilize it. By appropriately managing potential risks that could burden designation as innovative financial services, more proactive system operation becomes possible. At the initial designation stage, an appropriate test scale proportional to potential risks will be set, and if risk management regarding stability and consumer protection is confirmed, rapid relaxation of conditions and institutionalization will be supported. Therefore, it is expected that the system can be utilized more actively in line with its original intent.

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