First day of the prohibition law… “Seller provides documentation, consumer confirms signature”

The Financial Supervisory Service announced 10 articles and 10 articles on concerns raised in the media regarding the Financial Consumer Protection Act (hereinafter referred to as the Financial Consumer Protection Act), which will take effect on the 25th.

① What is the scope of the seller’s money return when the consumer exercises the right to terminate the illegal contract?

The illegal contract termination right is the right of the consumer to terminate the contract in the middle of the violation of the regulation when the financial company violates the sales regulation. The intent is to ensure that consumers do not receive property penalties due to termination for illegal contracts from the time of termination. It has a different nature from the right to claim damages, which demands compensation for damages. Therefore, since the effect of cancellation of an illegal contract occurs in the future, the contract becomes invalid from the point of termination. Usually, the consumer pays fees and penalties when canceling a contract, but in the case of an illegal contract, the seller cannot charge the consumer the costs related to the cancellation.

② What are the criteria for judging small claims dispute mediation?

The Financial Services Act prohibits the case where the dispute settlement price is less than 20 million won so that financial companies file a lawsuit to avoid dispute settlement and general financial consumers do not have difficulty in remedy afterwards. Regarding whether small claims dispute mediation is applicable, the dispute mediation price is determined by the amount claimed by the consumer when applying for dispute mediation.

③ Is there a specific guideline for the fulfillment of the obligation to familiarize yourself with the product?

In the law, the act of causing a person who has not been trained to perform duties in accordance with the internal control standards to do business related to the solicitation of contracts is prescribed as an unfair solicitation act. The determination of whether the obligation to familiarize with the product is fulfilled is based on whether the financial company has specified and fulfilled the job training items required for individual financial products. Job training items required for individual financial products are voluntarily determined by financial companies in consideration of product content and consumer protection policies.

④ Do you have to provide written instructions?

In principle, the seller must provide an explanation at the time of solicitation or at the request of a general financial consumer. If the consumer understands the seller’s explanation, he or she must confirm the fact by signing, stamping, or recording. The method of providing product descriptions is stipulated by electronic indication of intention, such as issuance in writing, mail (including e-mail), and text message. This includes showing the contents of the manual through a mobile app or tablet.

⑤ Is there a specific provision for the core manual in the law?

The law requires a summary of important matters to be placed at the beginning of the manual. This will take effect from September 25th. Matters to be included in the core description are characteristics that differentiate them from similar financial products, matters regarding possible disadvantages after contracting, and contact information available when filing a complaint or requesting consultation. In the first half of the year, the financial authorities plan to prepare a standard draft of the core specification in each financial industry association.

⑥ Will the investment propensity evaluation result be changed once it is decided?

Seller shall be provided with information necessary for determination of suitability from the customer, and shall receive confirmation from the customer that the information provided is correct. Based on the information provided by customers, we should not recommend financial products that are not suitable for customers by judging the consumer’s ability to accept losses or repay loans. The seller is not obligated to request evidence from the consumer to confirm the facts of the information provided by the consumer. When determining whether a financial product is unsuitable for a consumer, in principle, the information provided by the consumer is considered comprehensively.

⑦ Are employees of financial companies also subject to fines or punitive penalties?

Penalties (up to 100 million won) can be imposed for violations of the six sales principles. A punitive penalty (50% of the maximum income, etc.) can be imposed only for violations of four regulations other than the conformity principle and adequacy principle among the six sales principles. The six sales principles are regulations that apply to financial product sellers and advisors, so no fines and penalties are imposed on employees of the affiliates for violations.

⑧ If there is any high-risk product in the investment product portfolio that is not suitable for the consumer, is it not recommended?

In accordance with the Gold Law, direct sellers of financial products such as banks and securities companies must prepare a risk rating for investment products such as funds and write them in the instructions. The sub-regulations stipulate the volatility of the underlying asset and the maximum amount of possible principal loss as matters to be considered when preparing the risk level. The risk of financial products composed of multiple funds is evaluated by combining the overall risk ratings of the constituent funds. In the case of variable insurance and ISA, when a consumer selects a fund at the time of contract, it is only necessary to describe the risk level of the selected fund.

⑨ It is difficult to establish internal control standards in line with the enforcement date of the law.

The obligation to prepare internal control standards will take effect from September 25th. Relevant organizations and executives can prepare internal control standards in accordance with the enforcement date of the law, and go through necessary procedures such as a general shareholders’ meeting and the board of directors. The matters to be included were stipulated mainly on the main matters of the law enforcement regulations that have been applied by the financial sector for many years. By the first half of the year, each financial industry association plans to establish an internal control standards committee to establish’standard internal control standards’.

⑩ How is the gold law applied to Saemaul Geumgo, Nonghyup, Suhyup, and Forestry Cooperatives?

Saemaul Geumgo, Nonghyup, Suhyup, and Forestry Cooperatives are excluded from the scope of application because the current supervisory and sanctions systems were not reflected at the time of enactment of the Gold Law. Since October last year, the Financial Services Commission has been reviewing with relevant ministries on how to apply the prohibition against them. After the enforcement of the prohibition law, it plans to prepare and announce a plan as soon as possible.