"Inducing Answers or Non-Face-to-Face Solicitation Banned in Sales of High-Risk Products like ELS"

Financial Services Commission Announces Proposed Amendments to Financial Consumer Protection Act
Supervisory Regulation Revisions Also Introduced
Stronger Accountability for Financial Institutions in Product Sales

On July 14, the Financial Services Commission announced that it would propose revisions to the Enforcement Decree of the Act on the Protection of Financial Consumers and give advance notice of changes to the Supervisory Regulations on the Protection of Financial Consumers until August 25, as part of improvements related to the "Comprehensive Measures to Prevent the Misselling of High-Risk Financial Investment Products."

The proposed amendments strengthen requirements so that, when financial institutions sell high-risk investment products, they must consider all six mandatory pieces of information related to the general financial consumer's loss-bearing capacity during investor profiling.

This change comes in response to past cases where financial institutions failed to properly conduct suitability and appropriateness assessments by omitting some of the six required items during investor profiling, thereby allowing the sale of high-risk products such as equity-linked securities (ELS) to consumers seeking to preserve principal or preferring short-term investments.

Accordingly, Article 14 of the Enforcement Decree will be revised so that, if a consumer wishes to purchase a financial investment product that is unsuitable or inappropriate for them, the report title will be changed to "Inappropriateness Assessment Report" to ensure the consumer is clearly aware of the product's unsuitability. Additionally, the report template will be improved to provide detailed explanations of the grounds and reasons for the inappropriateness in a way that is easy to understand.

As part of these measures, Article 13 of the Supervisory Regulations on the Protection of Financial Consumers (Improvement of the Order of Explanations for High-Risk Financial Investment Products) will be amended. To address consumer behavioral biases and ensure that key information about high-risk financial investment products is clearly explained, the top of the key information document will now prioritize: ① types of consumers for whom high-risk financial investment products are unsuitable, and ② risks such as potential losses and examples of loss occurrences.

Furthermore, Article 15 of the Supervisory Regulations (Addition of Prohibition of Improper Solicitation) will be amended to prohibit financial institutions from inducing specific answers from consumers during the suitability and appropriateness assessment process when recommending contract conclusion. It will also newly define improper solicitation to include cases where, after face-to-face investment solicitation, the contract is recommended non-face-to-face or the financial institution enrolls the consumer by proxy.

In addition, Article 35 of the Enforcement Decree (Improvement of Notification Procedures to Courts for Dispute Mediation Cases) will be amended, the role of the comprehensive financial consumer protection agency will be strengthened (regulation improvement), and a basis for the operation of internal control committee reporting items will be established (regulation improvement).

The Financial Services Commission plans to expedite the legislative process, including regulatory and legislative review, deliberation by the Commission and the Vice Ministerial and Cabinet meetings (in the case of the Enforcement Decree), following the advance notice period for the proposed amendments until August 25.

In addition, the Commission will implement improvements to bank sales practices, such as establishing bank branches authorized to sell ELS, and will carry out amendments to association-related regulations, including the model internal control standards for non-deposit products (Korea Federation of Banks) and the standard investment solicitation code (Korea Financial Investment Association), without delay.

The Financial Services Commission stated, "We expect that institutional improvements, such as strengthening sales regulations for high-risk financial investment products, will establish a more robust protection system for financial consumers," adding, "The government will continue to pursue institutional improvements to protect financial consumers going forward."