[Column] Financial Consumer Protection Without Investor Responsibility Is Just a Political Slogan

South Korea's Financial Literacy Lags OECD Average
Many Consumers Fail to Distinguish Between Principal Guarantee and Investment
Investor Responsibility Principle Must Also Be Emphasized

In South Korea, financial literacy remains low despite the fervor for investment. According to a financial literacy survey released last year by the Organisation for Economic Co-operation and Development (OECD), South Korea scored 62 out of 100, falling short of the average score of 64. It is ironic that a country swept by a financial investment craze lacks even basic financial knowledge.

The issue goes beyond mere numbers. Many consumers still cannot distinguish between investment products and principal-guaranteed products. Stocks, equity-linked securities (ELS), and exchange-traded funds (ETF) are investment products that entail the risk of loss, yet a significant number of people mistakenly believe they are as safe as deposits.

The losses incurred from Hong Kong H-Index ELS products are a representative case. The Financial Supervisory Service concluded that the banks selling these products had explained them to elderly customers as if they were principal-guaranteed, labeling it as a case of misselling and suggesting compensation ratios. However, the moment the authorities signaled that compensation was possible even for investment product losses, the perception spread throughout the market that “stock losses should also be compensated.” This undermines the principle of investor responsibility.

Last month, Lee Chanjin, Governor of the Financial Supervisory Service, stated during his first meeting with bank CEOs that “protecting financial consumers” would be his guiding principle. He emphasized, “There must be no more large-scale infringements of consumer rights, such as the misselling of ELS products.”

If financial authorities truly prioritize consumer protection above all else, it would be logically consistent to ban banks from selling investment products altogether. Banks should be limited to selling deposits, savings accounts, and government bonds, while investment products with potential principal loss, such as stocks, ELS, ETF, and funds, should only be sold by financial investment firms. However, the Financial Supervisory Service has in fact allowed banks to sell ELS products on a limited basis. This reveals a lack of policy consistency.

The fundamental solution lies in strengthening financial education. Ensuring that consumers clearly understand the difference between investment and principal guarantees is the most reliable form of consumer protection. However, education requires both time and resources, and its results are not immediately apparent. This is why the Financial Supervisory Service relies on the “easier path” of compensation and regulation.

The essence of financial supervision is not short-term remedies swayed by public opinion, but rather establishing principles and a clear philosophy within a changing financial environment.

Protecting financial consumers is an issue that easily attracts public attention and has clear sides. While it is understandable that the new Governor of the Financial Supervisory Service emphasizes “consumer protection,” this approach leaves much to be desired. Short-term popularity and political gains may be achieved, but consumer protection that ignores the principle of personal responsibility cannot be institutionally effective. Protecting financial consumers without upholding the principle of investor responsibility becomes nothing more than a political slogan. It is likely to foster moral hazard and, in turn, undermine the soundness of the financial market. The principle of “investor responsibility” must remain an inviolable foundation of the financial market.

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