Establishing financial infrastructure to protect consumers and make them investment-savvy has been pointed out as a vital thing-to-do for years. Improving consumer financial protection is believed to result in bolstering competitiveness of our financial industry. On January 12th, the Financial Services Commission announced that they would propel the plan to launch a new law this year regarding consumer financial protection.
Many cases in the past such as KIKO(Knock-in, Knock-out) have raised the awareness of importance on consumer protection. Along with this trend, advanced countries are proposing new systems in an attempt to strengthen their consumer financial protection. For instance, in the summer of 2010 the United States authorized the creation of a Consumer Financial Protection Bureau to safeguard consumer interests in many financial markets. A professional in the industry said that Bureau, an independent institute within Federal Reserve System, does also have broad latitude to undertake research related to consumer finance and financial literacy.
South Korea plans to put a system on par with developed countries such as the United States and the United Kingdom. Under the current regulations of each financial sector, the needs to protect consumers’ financial rights are hard to be satisfied. Different policies are applied in similar financial products and even sales regulations don’t exist in a few financial sectors. When it comes to Cash Management Account (CMA), for example, several sales regulations including Product Guidance and customized recommendation of products based on customer’s situation are imposed, while regarding similar products such regulations are not forced upon. That is, our financial system and services still lack in providing sufficient advice and information on financial products, which poses a lot of risks.
With surging concerns about consumers’ financial decision making, the plan aims to merge scattered but related systems –sales regulations, dispute mediation, financial education, etc- into a single comprehensive law with intent to secure coherent execution of protecting consumers. Experts argue that if regulation is to be beneficial, it must be tailored to specific products or sales activities not to the individual financial areas, and must be accompanied by research to measure the effectiveness of regulatory interventions. “Same regulations on the same function” system should be created considering consumers’ perspective.
To be specific, regardless of sectors, common sales regulations would be applied to similar kinds of financial products. The regulations are as follows: obligation to offer explanations on products, obligation to recommend suitable products based on the understanding of customers, control on promotion activities, ban on concluding binding contract and so forth. Yet, due to varying risks and characteristics of each financial product, details would differ from one another. For investment, products explanation on riskiness; for savings, explanation on interest rates and cancellation fee; and for securing products, information on insurance fee and reason to limit payment could be stressed more.
Furthermore, stricter policies would be carried out when financial institutions violate sales regulations. Existent laws lack rules on penalty and the amount of fee is judged to be relatively small. So once the consumer financial protection law passes, the government will be able to levy larger fee on a financial body that breaks the law. Also more efficient coordination measures would be devised in case consumers suffer damage in financial markets and become engaged in legal disputes. Lastly, the FSC is putting an effort to install informing systems, which help empower consumers with instructions they need to make financial decisions that are best for them and their families. Financial education system is expected to be settled in legislation in a long run.
Owing to the ever-widening set of financial options from an expanding set of firms and sometimes overwhelming amount of information, consumer finance has increasingly become a “do-it-yourself” activity. A growing number of consumers unintentionally came to assume a greater level of responsibility for their financial well-being. The new law which the FSC would bring to the National Assembly during the second half of this year would facilitate consumer financial protection, boosting the soundness of our financial system.