Board Approval Required for Sale of Investment Products with Principal Loss Exceeding 20%

[Asia Economy Reporter Park Ji-hwan] Starting as early as next month, if a financial company sells 'high-risk products' with a potential principal loss of more than 20%, it must obtain confirmation from the CEO and approval from the board of directors.

According to the financial investment industry on the 7th, the financial authorities plan to establish a 'Sales Conduct Code' for high-risk products with such content and implement it as early as next month. This is to prevent financial accidents following incidents such as the overseas interest rate-linked derivative-linked securities (DLS) crisis. It is also part of the Financial Services Commission's financial policy tasks for the second half of the year.

High-risk products are defined as those that are difficult for investors to understand and have a potential principal loss of more than 20%. In particular, by clearly defining the responsibilities of the CEO and the board of directors, the decision on whether to sell high-risk products must go through the company's internal product committee, the chief officer for financial consumer protection, CEO confirmation, and board approval.

This clearly stipulates the responsibility of the seller. In the future, it is expected that the responsibility of OEM (Original Equipment Manufacturer) fund sellers will also be held accountable.

In the case of asset management companies, they are required to conduct mandatory tests on the possibility and scale of principal loss under various crisis scenarios during the product development stage.

The target market (investors) capable of bearing the risk level of each product will also be set simultaneously. Manufacturers must provide sales companies with stress test results and target market setting judgment materials, and sales companies will finalize the customers for sale based on these.

The Korea Financial Investment Association plans to submit the final draft as an agenda item at the Korea Financial Investment Association's Self-Regulatory Committee meeting as early as the 18th.