Banks struggle with consumer protection ahead of new law

Automatic teller machines of different banks in Seoul [YONHAP]

Banks are scrambling to get ready as a law designed to protect the interests of financial consumers takes effect Thursday.

The Financial Consumer Protection Act was enacted last year to prevent investors from experiencing huge losses due to lack of information on financial products, like in the case of financial scandal related to Lime Asset Management funds.

Under the new law, financial companies must thoroughly explain all dangers involved in all financial products. The companies cannot recommend financial products that are deemed inappropriate considering the age, investment experience and assets of the investor.

If a financial company violates the tightened law related to the sale of financial products, it will be subject to punitive fines equal to 50 percent of earnings related to the mis-selling.

Even after consumers subscribed to a certain financial product, they can withdraw their subscription within a pre-set period, usually a week or two depending on the category of financial product. If it is clear the product has been mis-sold by the company, consumers can withdraw their subscription even past that pre-set period.

With strict guidelines on the way, banks have been preparing.

KB Kookmin Bank said Wednesday that it has installed speakers at service counters where financial products are sold. The speaker will notify the bank’s accountants if the wrong words are used in selling the financial product. The speaker will also run investment behavior tests by directly communicating with customers, the bank said.

While Hana Bank used to introduce a list of funds and trust products to investors based on its past analysis data on their investment behavior, the bank will make investors go through fresh investment behavior tests before introducing any investment product when selling products online.

Financial companies are still confused with details regarding the new law, such as what will be considered mis-selling and who will take responsibility for losses incurred when customers cancel a purchase.

"From the financial company's side, selling has become very difficult and time-consuming," a source from the local banking industry said.

Financial regulators have been late with giving detailed guidelines regarding the law, as enforcement ordinances of the new act were fixed just last week and detailed enforcement regulations were released by the Financial Services Commission (FSC) on Wednesday, just a day before the law goes into effect.

On concerns by financial companies, the FSC said there will be grace period of six months and it will only punish intentional and severe violations of the law during that period to minimize confusion.

The Financial Supervisory Service has been holding video conferences with chief consumer officers of financial companies from Tuesday to take opinion and questions. Meetings with banks and life insurance companies were held Tuesday. Meetings with other financial companies, including property insurance companies and savings banks, will be held gradually through April 9.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]