Lawmakers Propose a Bill to Protect Financial Consumers
Democratic Party of Korea lawmaker Jeon Jae-soo tabled an amendment to the Financial Consumer Protection Act so that punitive damages to be paid by a financial product seller that incurred a consumer’s losses by mistake or on purpose can be up to three times the losses. According to the amendment, it is financial companies in principle that must bear the burden of proof with regard to compensation following a violation of the act. In addition, the amendment contains how to estimate losses in the event of a violation of the duty to provide information.
The act was tabled about eight years ago and the National Assembly passed it in March this year. According to it, every financial product is subject to six different marketing-related regulations and a financial company must bear the burden of proof in the event of a damage suit caused by a violation of its duty to provide information. The act, however, contains no provisions as to punitive damages and class action suits and the scope of responsibility of financial companies stipulated in the act is narrower than in the previous discussions. The lawmaker’s amendment is to address these points and better monitor mis-selling, which has been repeated recently.
In the meantime, Democratic Party of Korea lawmaker Kim Han-jung proposed an amendment to the Act on Corporate Governance of Financial Companies so a punitive penalty can be imposed on a financial company lax in risk management or internal control. According to the amendment, the penalty must be 50 percent or less of the company’s proceeds resulting from the violation of duty and 300 percent or less of a consumer’s losses it incurred when the proceeds cannot be calculated.
Revision of the Financial Investment Services and Capital Markets Act is scheduled to be discussed in the upcoming session of the National Assembly, too. The purpose of the revision is to check the appropriateness of investment product descriptions provided by fund sellers and inspect whether funds are run in accordance with the descriptions. Also, the government is planning to change laws so that complex and high-risk financial instruments can be clearly distinguished and better regulated by the Financial Services Commission.