Support growing for consumer watchdog
Last Friday, Representative Kang Seog-hoon of the ruling Saenuri Party introduced a bill that would separate the role of consumer protection from the Financial Supervisory Service and establish an independent financial consumer protection agency.
The bill would give the new agency the same authority as the FSS, putting the protection agency in charge of monitoring financial institutions’ businesses, arbitrating financial disputes and educating consumers about financial products.
“The country’s current monitoring system has overly focused on managing the soundness [of financial institutions] rather than protecting financial consumers,” Kang said. “This bill was proposed to root out unfair business activities by financial institutions and enhance the rights of consumers.”
In a statement, Kang also said that since the Asian financial crisis of the late 1990s, Korea’s financial monitoring system has centered around ensuring the soundness of financial institutions like banks and insurance companies, but not so much monitoring unfair business practices by financial institutions from a standpoint of investors and depositors.
“Financial consumers have constantly been victims of unfair business practices by financial institutions, especially in the course of selling derivative products like savings banks’ subordinate security bonds and currency derivatives,” the lawmaker said. “Most recently, we also saw unfair selling practices by Tongyang Securities when it sold commercial paper and corporate bonds to retail investors. All these examples show the limits of our current financial monitoring system.”
Kang also noted that since the 2008 global financial crisis, many advanced countries like the United States and the U.K. have focused on overhauling their financial systems in ways that better protect financial consumers.
“This bill is in line with global trends,” Kang said.
Kang’s reform bill mirrors the reform plans announced in July by the FSC, the country’s top financial regulator, which included splitting the FSS into two by setting up a Financial Consumer Protection Agency.
President Park Geun-hye reportedly instructed the FSC to include measures to enhance consumer protection, and her administration’s financial and economic policies have largely been focused on supporting the financially vulnerable, as well as small and midsize enterprises. For instance, her administration also introduced a debt relief program called the National Happiness Fund, intended to lower household debt burdens.
“The [consumer] agency will be in charge of supervising the overall financial industry, including banking, insurance, financial investments and credit card businesses,” the FSC said in a statement. “It will be responsible for arbitrating financial claims and disputes, providing financial education, establishing infrastructure for information provision, supporting financially vulnerable consumers and supervising sales of financial products.”
With lawmakers demonstrating increased support for these changes, the creation of the new agency is expected to speed up and begin next year, as soon as the second quarter.
The Financial Supervisory Service fiercely opposed the proposed split at first, but since support has built for the change, the FSS has slightly backed off and is keeping quiet for now.
Some civic groups are against the new agency, complaining that there are already too many organizations involved in overseeing the financial industry, creating excessive inefficiencies and wasting money. Instead of a new consumer protection group, they are calling for the FSS to merge with the FSC to increase operational efficiency.
The groups cited the case of the FSC delaying the enforcement of a financial law that banned securities companies from selling junk-rated corporate bonds and commercial paper from their affiliates to help them raise funds. The law was supposed to take effect in July, but was postponed by three months last week. The FSC made the decision even though the FSS had reportedly been aware of Tongyang Securities selling bad bonds to retail investors as far back as July.
Financial institutions are also opposed to the plan as it will increase the number of monitoring agencies they need to report to.
“We would admit the need for an agency that protects financial consumers, but from the point of view of a financial institution, we will have to cope with the FSC, the FSS and now the new agency,” said a financial industry official.
BY LEE EUN-JOO [email@example.com]
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