▲ The 4th Consumer Risk Response Council meeting
Financial institutions will now be required to provide detailed explanations regarding the structure and sales commissions of target-conversion funds.
Advance notice requirements will also be strengthened when financial institutions suspend or change the handling of financial products, such as loans.
According to financial authorities on the 6th, the Financial Supervisory Service (FSS) held the 4th Consumer Risk Response Council chaired by Governor Lee Chan-jin on the 4th to inspect the management status of consumer risk factors by financial sector.
First, amid growing interest in the capital markets and an increase in the establishment and sales of target-conversion funds, it was pointed out that fund sellers have been recommending funds that charge front-end fees, thereby increasing the burden on consumers.
Target-conversion funds raise capital for a set period, invest a certain proportion in risky assets such as stocks, and then automatically convert into safe assets such as bonds once a pre-determined target return is reached, managing the funds until maturity.
Until the target is achieved, there is a risk of loss due to market fluctuations.
According to the FSS, 71.8% of investors in public target-conversion funds from 2025 to the first half of this year subscribed to Class A funds, which charge front-end fees.
While Class A funds feature low expense ratios in exchange for front-end sales commissions—making them advantageous for long-term investments—recent stock market volatility has led to a shorter duration required to achieve target returns.
The average period dropped from 249 days in 2024 to 57 days in the first half of this year.
The Council plans to require detailed explanations of such funds to be stated as investment precautions in fund registration statements and to reinforce explanations regarding the burden of sales commissions.
Consumer advance notice regarding the suspension or modification of financial product offerings will also be reinforced.
This measure follows recent instances where banks abruptly suspended loan provisions or reduced limits without prior notice due to household loan aggregate management.
However, considering side effects such as triggering preemptive demand or herd behavior, the measures will be implemented first for products where advance notice is deemed most necessary.
The notice period, methods, and contents will be pursued after consultations with the banking sector.
The meeting also pointed out that illegal business practices persist in insurance product briefing sales, including failure to fulfill disclosure obligations, promises of special benefits, and proxy application submissions.
Assessments indicated that measures to strengthen sales procedures for General Insurance Agencies (GAs), implemented since July, have failed to take firm root in the field.
The Council instructed firms to guide sales-deficient companies to strengthen their internal controls while distributing the findings of on-site inspections and consumer precautions.
It also called for a strong response through additional mystery shopping inspections targeting briefings and promotional events.
In addition, a task force (TF) on loss assessment system restructuring will be operated to formulate detailed operational plans for the independent loss assessment system, and the actual practices of drafting loss assessment reports will be inspected.
Meanwhile, in response to a court ruling prohibiting the scraping of family relation certificates and other documents, the Council took measures to allow financial institutions to apply for a temporary grace period on scraping.
It will also support the transition to alternative means such as Public My Data.
FSS Governor Lee Chan-jin emphasized, "Although stock price volatility has eased, it remains at a high level and internal and external uncertainties persist," adding, "We must keep a close eye on major risk factors by sector and respond immediately if consumer damage is anticipated."
He continued, "We must closely examine whether unreasonable financial product trading practices occur for vulnerable borrowers in connection with interest rate hikes," and stated, "Ahead of the Chuseok holiday, we must also make efforts to prevent public livelihood crimes such as voice phishing and financial accidents."
(Photo: Provided by the Financial Supervisory Service, Yonhap News)
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