Financial Authorities discuss measures to reinforce investor education system

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-Written by Jaehyun Kim

These days, the hottest news in finance is no doubt ‘Tongyang Crisis.’ Every news channel showed pictures of people wailing who lost their invested money to Tongyang Securities, a securities company that has recently filed for court receivership.

According to the victims, they were persuaded by Tongyang to sell their original financial commodities for its new corporate papers (CP) which promised to provide more return than the former. They were even led to believe they would be secured the principal guarantee, thereby bearing no serious risks of purchasing CPs. However, let alone the CP’s higher return promised to investors, what made investors devastated and outrageous was the fact that Tongyang, without a sense of responsibility, failed to return any of the investments and simply filed for legal management. Furthermore, it is increasingly doubtful whether Tongyang purposefully tricked its innocent investors into purchasing CPs as Tongyang’s financial collapse had been considered obvious by many experts in the field.

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It is very sorrowful for the victims as most of them were from the lower class. However, there is nothing to be done for what’s already happened. Let bygones be bygones. What’s important is the present, and the future. In other words, the government’s response to the crisis is what matters. Therefore, the Financial Services Commission’s action should focus on constructing an effective mechanism to prevent the recurrence of similar crises. As the first step, the FSC recently prepared a first TF conference to reinforce the educating of investors, for the prevention of such crises’ rebirth. The reasons of holding such a conference areas follow. First, the society as a whole has been increasingly concerned about the necessity of reinforcing financial education for the sake of investor protection. This is because financial environments have been often subjective to radical changes. Second, due to the fact that ‘investment products’, unlike deposits, do not guarantee the principal, investors without adequate understanding of such products are likely to get victimized in a similar way.

For these reasons, the conference was held on November 15th at the FSC. The Financial Supervisory Service, Korea Council for Investor Education, Korea Investors Protection Foundation, Financial Quotient Council, and scholars participated in the conference led by the FSC. These experts have agreed upon a number of solutions and alternatives.

First, they will consider preparing a ‘standard guideline’ that reflects factors like investors’ life cycle and cases of investment loss. In order to create an effective guideline, they are planning to benchmark the exemplary cases of educating investors from England and the United States. Second, investors will easily be able to receive education when necessary through the new educational system. Third, they plan to raise the investors’ awareness of the importance of education while creating an environment that forms a social consensus on the necessity to reinforce financial education. Fourth, they will examine legal and institutional measures to further improve and reinforce education.

After considering all of the discussions made in the conference, the FSC will report the four measures to the Financial Education Conference which is to be held in late December to improve education system for investors.

Jaehyun Kim, jaekim7000@gmail.com

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