One Year Since Governor Lee Chanjin's Appointment at the FSS... Consumer Protection Remains a Top Priority in H2, Focused Inspections on ETFs and GAs

Inspections Begin This Month on Bank ETF Trust Fee Disclosures
Intensive "Full-Scale Inspections" for Problematic GAs; Stronger Oversight of Third-Party Risks in Insurance
Urgent and Major Unfair Trading Cases to Be Investigated by Special Judicial Police

The Financial Supervisory Service (FSS) will continue to prioritize "consumer protection" through preemptive, preventive measures as its core supervisory policy in the second half of the year, focusing on proactively eliminating risk factors in the financial sector. From this month, the FSS will begin inspecting banks over the recent surge in exchange-traded fund (ETF) trust sales, targeting related commissions. It will also strengthen oversight of unhealthy business practices by insurance general agencies (GAs) as well as third-party risks associated with insurance claims. Additionally, during the second half of this year, the FSS will check whether the preemptive consumer protection system is functioning effectively on the ground and will comprehensively evaluate and release the results.

Yonhap News Agency

According to the "Key Achievements Since Governor Lee Chanjin's Appointment and Future Plans" released by the FSS on August 13, the agency will continue to review and enhance the preemptive consumer protection framework throughout the second half, constantly assessing its practical effectiveness in the financial field. The FSS will also comprehensively evaluate and announce the outcomes of consumer protection efforts to date. The authority is reorganizing its supervisory system to strengthen the responsibilities of financial product creators and sellers at every stage of the product lifecycle, from design and manufacturing, through sales, and post-sale management.

The FSS will also scrutinize the recent sharp increase in bank ETF trust sales. Between August and September, it will conduct inspections of banks selling ETF trusts, focusing on whether they are adequately fulfilling their duty to explain trust commission fees. After these inspections, the FSS will form a system-reform task force, including banks and related associations, to discuss improvement measures for trust commission fee structures, bank performance evaluation (KPIs), and sales procedures. According to the FSS, the six major banks recorded approximately 64 trillion won in ETF trust sales between January of last year and May of this year. Trust commission income for May alone reached 103.6 billion won, a more than tenfold increase compared to December of last year.

In the insurance sector, the FSS will promote a comprehensive set of policies to fundamentally curb the causes of civil complaints and disputes, and to establish a supervisory system that genuinely protects consumers. In the third quarter, the FSS will hold a workshop for company management to guide financial companies to develop KPIs that balance consumer protection and sustainable growth, rather than focusing on short-term results. In order to improve consumer understanding of products and reduce mis-selling, the FSS will radically revise insurance contract terms and product descriptions to highlight only key information. Starting in September, an artificial intelligence (AI) function will be piloted in the comprehensive complaint management system, and from next year, generative AI will be incorporated into product review and supervision work.

Supervision of insurance sales channels will also be tightened. The FSS will devise a comprehensive supervisory plan aimed at eradicating illegal sales practices among GAs, now the largest distribution channel in the insurance market, and will select problematic GAs displaying repeated illicit business practices for an intensive "full-scale inspection." Guidelines will also be created to block "third-party risk" situations, wherein entities such as hospitals or auto repair shops encourage excessive use of insurance claims or inflate costs.

Combating financial crimes affecting everyday life and protecting vulnerable groups will also be central tasks in the second half of the year. The FSS intends to upgrade its system for monitoring illegal financial activity and expand cooperation with related agencies, while also continuously developing financial education programs. The agency plans to launch a concentrated investigation into hospitals suspected of insurance fraud over the coming months, and will apply strict measures if predatory financial practices such as illegal debt collection are detected.

In the capital markets sector, the FSS will reaffirm its commitment to eradicating unfair trading by reinforcing the notion that "stock price manipulation leads to ruin" and upholding investor protection as a guiding principle.

Leveraging the investigative authority of the special capital market judicial police, introduced in April, the FSS will actively investigate urgent and serious unfair trading cases. For perpetrators of unfair trading, the FSS will recover illicit profits via fines and other penalties and will impose market exit measures, including trading bans, to fundamentally block stock price manipulation at its source.

Disclosure supervision to protect investors will also be strengthened. After introducing comprehensive improvement measures covering pharmaceutical and bio industry disclosures, the FSS will push to revise disclosure forms to ensure the intent of the revised Commercial Act is realized in practice, thereby safeguarding shareholder rights. It will also enhance the comparability and analytical functions of disclosure information in order to improve user convenience.

The agency reiterated its zero-tolerance policy for unfair trading in the virtual asset market as well. The FSS will continue to advance market surveillance and investigation functions that utilize artificial intelligence (AI), including implementing LLM-based text analysis and establishing on-chain tracking systems.

In addition, the FSS will continuously monitor key companies at risk of causing large-scale investor losses due to accounting suspicions and will also strengthen stewardship activities and fiduciary responsibilities among asset management firms, including a reinforcement of the stewardship code. To promote a vibrant venture capital ecosystem, it will expand the recognition scope for venture capital, as well as revise the prudential regulatory system for comprehensive financial investment business entities.

The FSS also plans to continue its support of vulnerable social groups through inter-agency cooperation. In partnership with the Ministry of Justice, the FSS will promote the living expense account system and ensure that related policies are implemented smoothly as scheduled in January of next year. The "Shared Growth Finance Index," an assessment system for the joint development of financial companies and SMEs/small business owners, will undergo a pilot evaluation, with outstanding banks to be selected and announced in September. The FSS will also monitor trends in the employment of people with disabilities within the financial sector and, together with the Ministry of Employment and Labor, will develop institutional improvement measures.

Financial sector IT and security supervision will also be redesigned to move from a reactive, post-incident response to a preventive, proactive approach. The FSS will promote risk prevention-oriented security reinforcement, proactive AI security responses, and the establishment of AI governance within the finance sector. Through amendments to the Electronic Financial Transactions Act and similar measures, the authority also plans to further strengthen internal IT controls and ensure the practical implementation of disclosure regulations.

This content was produced with the assistance of AI translation services.