“I just signed the contract because the salesperson told me that the financial product is safe so that I don’t need to take the risk of losing money. The salesperson didn’t give me an explanation about the possibility of loss.”
“The life planner explained that the product covers every relevant disease, so I decided to buy it. And the planner said, I just need to say yes to every question a telemarketer asks. So I did, but I never expected this situation.”
Kim Soo-il
These are consumer complaints which are often received to the Financial Supervisory Service regarding financial mis-selling. Many complain they were not given the information they needed or risks were not explained to them or they were not fully advised. If the FSS receives a consumer complaint, the FSS does its utmost to help the consumer be compensated for his or her damage by checking whether the complaint is true based on contract-related documents. When it comes to cases expected to cause damage to many other consumers, the FSS warns consumers and provides financial education programs for vulnerable social groups, including the elderly, the disabled and students, in order to preempt many relevant problems.
However, many consumers have still fallen victim to financial mis-selling, and the number of complaints submitted to the FSS or phone calls for consultation is on the rise each year. Financial complaints about a grievance over financial companies or asking for compensation for damages increased from 63,000 in 2010 to 73,000 in 2015. On the other hand, phone calls for consultations soared to 550,000 in 2015 from 310,000 in 2010. In this case, most consumers made calls to check whether they were given correct information from financial companies. They do not fully trust financial companies, so they want to double check through the FSS, a neutral watchdog. Given that the financial industry builds on promise and trust, lack of consumer trust is a serious problem.
Regarding financial product launches, financial authorities recently abolished the prior consultation of individual agreement and decided to replace the procedure with ex post facto report. This means authorities sought a paradigm shift of financial regulations to boost autonomous operation of financial companies and strengthen ex post monitoring. This move requires authorities to establish a system for inspecting and responding to cases of consumer damage, while financial firms should build a system to protect consumers autonomously and preemptively.
Through a recent reorganization, the FSS newly established sectoral consumer protection departments to inspect unsound business conducts by business branches that connect companies directly with consumers. Through these departments, the FSS reviews submitted complaints and inspects whether branches violate regulations in selling financial products. And the FSS seeks to prevent further consumer damage by finding unreasonable financial practices and expeditiously improving them.
However, it is not possible to improve inappropriate sales practices only with the authorities’ effort to strengthen supervision. Each financial company should have a strong internal control system in place, and the CEO of each firm should have interests in helping the consumer protection department function effectively under the supervision of the chief customer officer. Furthermore, the department of consumer protection should cooperate with the marketing and development departments from the product development phase in order to check whether there are any adverse impacts on consumers, as well as found a system for consumer protection in the sales process.
In addition, ways to deal with complaints resulted from product sales should improve as well.
So far the FSS has been at the center of responding to consumer complaints, but this method is not enough to earn consumers’ trust in financial companies. When a consumer files a complaint, the relevant financial company should respond to the complaint with a swift, reasonable solution. Without this appropriate practice being settled, consumers cannot have confidence in financial companies.
For this, financial authorities started evaluating financial companies’ current status regarding consumer protection this year. The overall evaluation is to assess each company’s organization and operating system for consumer protection with aims of having financial firms autonomously build and operate the consumer protection scheme. Furthermore, authorities have promoted reforms in handling financial complaints and disputes through which the FSS would firstly address complaints submitted directly to the FSS by leading to coordination between the corresponding company and the consumer. Moreover, the authorities will impose financial sanctions against certain companies that are frequently subject to consumer complaints or disputes under the principle of self-responsibility.
To facilitate the operation of those systems, financial companies should regard consumer protection-related expenses as investments in “consumer trust,” an intangible asset, not as unnecessary expenses. At the same time, those companies should work hard to create corporate culture to support coprosperity with consumers. Fundamentally, it would be desirable to preempt any causes of consumer dissatisfaction by enhancing consumers’ understanding of financial products with concise and easy manuals and to establish a sound and fair culture for financial product transaction.
The importance of consumer protection cannot be emphasized enough. Changing the financial environment requires consumer protection, and people want their right to be protected. However, regulations by authorities are not enough to produce a meaningful change. Financial companies should take the lead in protecting financial consumers and collaborate closely with regulators to set up a culture of consumer protection. On top of that, consumers need to be careful to participate in financial transactions based on an accurate understanding of risks those transactions may carry. Then, mature and sound practices for financial product transaction could be established.
By Kim Soo-il
The writer is the deputy governor of the Financial Supervisory Service. The views expressed here are his own. -- Ed.