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Financial consumer protection as the starting point for financial reform

Published: 14 Oct. 2025, 00:04

Choi Soo-hyun

The author is a chair professor at Kookmin University School of Business and former Governor of the Financial Supervisory Service

The government’s plan to overhaul Korea’s financial supervisory structure, once the subject of intense debate, has been shelved. The decision to maintain the current system, including abandoning the idea of establishing a dedicated financial consumer protection agency, is regrettable. Yet given the global economic uncertainty and market volatility, the government’s choice to prioritize stability deserves respect. Encouragingly, financial regulators have pledged to enhance transparency and public accountability in financial oversight, while financial institutions have expressed support for stronger consumer protection. This shared commitment provides an opportunity to pursue meaningful reform.

Representatives of investors who suffered losses from equity-linked securities (ELS) tied to Hong Kong’s H Index, the Hang Seng China Enterprises Index, call for full compensation of their principal during a rally denouncing financial fraud in front of the NH Nonghyup Bank headquarters in Jung District, Seoul, on March 15, 2024. [YONHAP]

True financial reform must begin from the essence of finance itself. The financial industry operates on what is, in effect, the hard-earned money of consumers. For banks, deposits represent the core source of funds — and simultaneously, liabilities that must be repaid. At the end of 2024, Bank S reported a deposit-to-liability ratio of 1,127 percent, with deposits making up 73 percent of total assets. By contrast, Samsung Electronics’ debt ratio was only 27 percent, making banks’ leverage more than 40 times higher. Such an inherently debt-heavy structure means that financial supervision has traditionally focused on maintaining soundness and systemic stability, while consumer protection remained secondary.

Yet financial stability and consumer protection are twin pillars of a healthy financial system. The administrative and supervisory framework must be fundamentally redesigned to balance both. Financial consumers must be recognized not merely as beneficiaries of regulation but as the source and backbone of the financial ecosystem. It is time to institutionalize their rightful place within the system.

A second cornerstone of reform should be building governance that ensures consumer participation and rights. The Financial Consumer Protection Act grants consumers fundamental rights related to compensation for damages from financial products, protection from unfair business practices, and participation in promoting fair treatment. However, these legal rights remain largely unenforced in practice. Consumers must be allowed to participate as stakeholders in every stage of the financial process — from policy formulation and supervision to product sales, repayment, and dispute resolution. A governance system that structurally incorporates consumer voices is the foundation of a consumer-centered financial system.

Currently, consumer protection is still oriented around post-crisis compensation—resolving disputes and providing monetary remedies after harm occurs. Real protection must extend to prevention and inclusion. A truly consumer-centered financial system would place users at the core of every phase: product design, sale, transaction, repayment, and dispute resolution. The long-used term “misselling” should be expanded to the broader concept of “incomplete transaction” to cover all stages of financial activity. The term “misselling,” rooted in industry jargon rather than law, focuses too narrowly on the sales process and allows broad interpretation. Adopting the concept of incomplete transaction — encompassing every step of financial engagement — would strengthen the institutional basis for consumer protection.

An immediate priority in the field is ensuring consumers’ access to financial institutions. Many consumers who call bank helplines face long waits after navigating automated voice systems and AI menus. The spread of digital banking has made access even harder for older and vulnerable populations, and financial terminology remains complex. These are daily frustrations faced by ordinary customers.

The Financial Supervisory Service's headquarters in Yeouido, western Seoul [YONHAP]

Corporate leaders in finance must experience these frustrations firsthand. Reform begins when executives review their firms’ internal practices, procedures, and documentation through the lens of the consumer. Standardizing and simplifying customer service across institutions is essential. Advertising campaigns that proclaim “customer first” will only gain authenticity when the experience at the counter — or on the phone — reflects that same sincerity.

Although the reform of financial supervisory agencies has stalled, the broader effort to redefine financial consumer protection should continue. Reestablishing its status as a central mission, alongside financial stability, would represent a genuine step toward institutional innovation.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.