Enforcement of the Financial Services Act on the 25th... Growing Calls for Improving the Effectiveness of the Dispute Mediation Committee (Comprehensive)

Assemblyman Kim Byung-wook of the Democratic Party and others
Propose Amendment to the Financial Consumer Protection Act to Enhance the Effectiveness of the Subcommittee

[Asia Economy Reporter Park Sun-mi] Ahead of the enforcement of the Financial Consumer Protection Act (FCPA) on the 25th, voices demanding improvements in the effectiveness of the Financial Dispute Mediation Committee under the Financial Supervisory Service (FSS) are growing louder.

According to the National Assembly and financial circles on the 5th, 11 lawmakers including Kim Byung-wook of the Democratic Party of Korea have proposed an amendment to the FCPA that includes measures to enhance the effectiveness of the Dispute Mediation Committee. The core is to strengthen legal measures to enhance the expertise and independence of financial dispute mediation.

The lawmakers proposed through the FCPA amendment bill ▲ that rules related to dispute mediation must go through the committee’s review and resolution if revised, newly established, or abolished ▲ that the committee’s composition must include at least one representative each from the mediation target institutions and financial consumers ▲ and that the committee members’ term be specified as three years. They also argued that the appointment of committee members should be determined by lottery at each meeting and that the committee should include at least one representative each from the mediation target institution, financial consumers, applicants, and mediators agreed upon by related parties.

Last month, the FSS announced a revision of the ‘Dispute Mediation Rules,’ removing the provision that required prior approval from the committee when parties to a dispute appear before the committee to state their opinions, and decided to reduce the discretionary power of the FSS Governor who had the authority to request a review of the committee’s resolution. However, this alone was judged insufficient to secure expertise and neutrality.

What is the role of the Financial Dispute Mediation Committee and how can it be improved?

The FSS Dispute Mediation Committee accepts mediation applications for disputes raised by consumers against financial companies and proposes reasonable dispute resolution methods or mediation opinions to induce agreement between the parties.

However, under current law, the FSS Governor can appoint or commission committee members and establish or revise rules regarding the committee’s decisions without separate procedures, which has raised concerns that the committee’s expertise and neutrality functions may be weakened. Also, the committee is stipulated to be composed of members appointed by the chairman at each meeting, which could allow arbitrary member appointments depending on the chairman’s judgment.

Calls for improving the effectiveness of the committee have emerged amid the increasing likelihood that financial accidents causing damage to many consumers, such as the Lime and Optimus private equity fund redemption scandals, will be mandatorily referred to the FSS Dispute Mediation Committee. According to the FSS’s recently announced ‘2021 Business Plan,’ the FSS is currently working on establishing standards to ensure that financial accidents affecting many consumers are mandatorily referred to the committee when certain conditions are met. The plan is to expand dispute resolution through the committee.

Within the banking sector, reliance on the committee is growing. In particular, the recent FSS committee meetings have been held concurrently with the banking sector’s Sanctions Review Committee, making acceptance of the committee’s decisions perceived as an essential step to mitigate sanction levels. Yoon Jong-won, President of Industrial Bank of Korea, who is tasked with compensating for the Discovery Fund, clearly stated that "compensating losses through the committee is reasonable," expressing his intention to go through the committee, which guarantees objectivity.

Lawmaker Kim said, "Applications for dispute mediation related to financial investment products are increasing amid a series of incidents such as KIKO and Lime," and added, "To smoothly resolve increasingly complex financial products and various related financial disputes, securing neutrality and expertise of the current dispute mediation system is a priority."