FSC Korea Consults on Enforcement of New Consumer Protection Law

​South Korea's FSC (Financial Services Commission) is seeking input from the public on a proposed enforcement decree for the newly enacted financial consumer protection legislation.

The Cabinet approved new legislation on financial consumer protection in March 2020, which is scheduled to go into effect on 25 March 2021.

To help level the playing field between consumers and financial institutions, the FSC has published a notice asking the public to provide their input on how the new legislation will be enforced. The proposals are open for comment from 28 October to 6 December.

The key enforcement proposals relate to consumer rights, the types of firms under scope, and the reach of the new legislation, and the penalties that can be imposed.

For instance, the FSC proposes adding credit unions, P2P lending firms and private lenders to the scope of the legislation, which presently only covers financial products offered by banks, insurance companies, financial investment firms, specialised credit finance companies and savings banks.

The proposal also establishes business registration requirements for loan sales agents and independent advisory service providers, requiring online service providers to install an algorithmic programme designed to prevent conflicts of interests.

The new legislation guarantees consumers the right to withdraw subscription and terminate unfair agreements. The FSC is proposing that customers be granted wider rights.

"The right to withdraw subscription applies to all loan and guarantee products in principle and the following investment products – non-money trust contracts, highly complex funds, highly complex money trust contracts and highly complex investment entrustment contracts – with the exception of cases where the application of consumer rights may be difficult due to peculiarities of particular products or investor preference," the FSC says.

The regulator also proposes to enhance conflict resolution procedures by requiring conflict resolution committee members to have at least fifteen years of professional experience.

Additionally, under the new law, financial institutions may face punitive fines of up to 50 percent of profits gained from non-compliance. But the FSC is proposing introducing specific standards for calculating fines that are designed to impose heavier penalties for greater amounts of unfair profit transactions.

The FSC may also order a sales ban on certain financial products to prevent significant damages to consumers. "This proposal establishes a comprehensive legal ground that allows the FSC to deal with different situations on a case-by-case basis."

Separately, Korea Herald reported that FSC chairman Eun Sung-soo stressed the importance of consumer protection to mitigate the impact of Covid-19 on customers and uncertain retail investments due low interest rates.

"Consumer protection is more important than ever as retail investors have increasingly invested in high-profit financial products amid the low interest rate environment triggered by the Covid-19 pandemic. We need to make utmost efforts to protect financial consumers and to stabilise the markets, particularly at times like this," Eun said.