[Exclusive] Path Opens for Investment Fraud Victim Relief... FSS Distributes Guidelines

Reference Points for Applying the Telecommunications Fraud Refund Act by Type of Investment Fraud
Distributed to All Financial Sectors Last Month
Recommendation to Incorporate into Internal Regulations
Following Last Year's Supreme Court Ruling
Enabling Relief for Investment Fraud Victims
Encouraging Previously Reluctant Financial Institutions to Comply

A path has opened for victims who were defrauded by so-called “investment leading rooms” (Tujaridingbang)?where scammers promised profits and solicited investment funds before disappearing?to seek restitution. The supervisory authorities have prepared and distributed guidelines enabling victims to pursue relief procedures by applying the Special Act on the Prevention of Electronic Telecommunications Financial Fraud and Refund of Damages (the Telecommunications Fraud Refund Act). By recommending that these guidelines be incorporated into internal regulations, financial institutions?which had previously been reluctant to apply legal precedents?can now actively participate in the victim relief process.

According to the financial sector on May 14, the Financial Supervisory Service (FSS) distributed “Reference Points for Applying the Telecommunications Fraud Refund Act by Type of Investment Fraud” to all financial institutions last month. The FSS disseminated these guidelines not only to major commercial banks (first-tier financial institutions) but also to mutual finance companies, savings banks (second-tier financial institutions), and even the post office. Although the guidelines are for reference, it is reported that the FSS also recommended that each financial institution incorporate them into their internal regulations. The FSS formed a task force (TF) with related agencies to jointly develop the guidelines and is expected to check whether the guidelines are reflected in internal regulations through the TF. An FSS official stated, “We prepared the guidelines taking into account the standards presented in Supreme Court precedents.”

The reason the FSS distributed the guidelines is to ensure that financial institutions comply with the Supreme Court ruling, which allows the Telecommunications Fraud Refund Act to be applied to investment fraud. Last year, the Supreme Court expanded the scope of the refund act, which had previously only applied to voice phishing crimes. As a result, there were high expectations that victims of illegal leading room scams or investment fraud involving fake exchanges would be able to apply for relief, just like victims of voice phishing. However, even after the Supreme Court ruling, banks remained passive, claiming there were no supervisory guidelines or instructions for similar investment frauds, and refrained from making independent judgments.

With these new guidelines, the FSS has clarified that relief is possible for investment fraud cases involving fake exchanges, as exemplified in the Supreme Court ruling. For instance, crimes in which perpetrators create private home trading systems (HTS), collect money under the pretense of fees, and then disappear, fall under this category. In addition, since investment advisory, discretionary investment, brokerage, and trading activities are not permitted without proper registration as a financial investment business, the guidelines provide representative examples for each activity so that financial institutions can follow Supreme Court precedents. A “leading room” refers to a chat room on platforms such as KakaoTalk or Naver Band, where investment information on stocks or virtual assets is provided via telecommunications. In these rooms, individuals who have not completed the required registration or notification procedures often recommend specific stocks or solicit investments in quasi-receipt activities before absconding. It is now expected that victims of such investment leading room scams will also be eligible for relief.

Victims of illegal investment leading room scams can now apply for relief from financial institutions, such as banks, just like victims of voice phishing crimes. If a victim files a relief application with the financial institution managing the account to which the funds were transferred or remitted, the institution can verify the deposit details and impose a payment suspension on the relevant account. After suspending payments, the financial institution requests the FSS to announce the commencement of the bond extinction procedure. If the account holder of the fraudulent account does not file an objection within two months, the claim to the account is extinguished. If the FSS determines the refund amount within 14 days from the date of bond extinction, the financial institution must promptly reimburse the victim.