SEOUL — The Financial Supervisory Service (FSS) has unveiled a comprehensive "Financial Consumer Protection Improvement Roadmap," signaling a paradigm shift in how financial products are regulated in South Korea. Under the new measures, the financial watchdog will have the authority to preemptively suspend the sale of funds and insurance products deemed to pose significant risks to consumers and, in unprecedented cases, nullify existing contracts that lead to large-scale losses.

The roadmap, announced by FSS First Senior Deputy Governor Lee Se-hun on December 22, focuses on strengthening oversight across the entire lifecycle of financial products—from design and manufacturing to sales and post-management.

Strengthening Oversight and Contract Nullification

The most striking feature of the reform is the FSS's proactive stance on high-risk products. If a product is expected to inflict massive damage on consumers, the regulator will mandate a halt to its sale. Furthermore, the FSS is exploring legal avenues to retroactively invalidate contracts for products already sold if they are found to be inherently flawed or excessively predatory.

"We cannot rule out the necessity of fundamental contract nullification for products that have already been distributed but continue to threaten consumer interests," Lee stated during a press briefing at the FSS headquarters in Yeouido.

To prevent risks at the source, the FSS will mandate external expert reviews during the design phase of high-risk financial products. Insurance companies, for instance, will now be required to report new coverage plans for emerging medical technologies in advance and explicitly state coverage limits in their basic documents.

Organizational Restructuring and Enforcement

In tandem with the policy changes, the FSS announced a major internal reorganization. A new "Consumer Protection General Organization" will be established directly under the FSS Governor. This unit will integrate supervisory functions with consumer protection, overseeing newly created departments such as the Consumer Protection Supervision Coordination Department and the Consumer Damage Prevention Department.

Notably, the Insurance Department—previously under the First Senior Deputy Governor—will be reassigned to the Deputy Governor for Consumer Protection. This move reflects the high volume of disputes and complaints originating from the insurance sector.

The FSS also plans to establish a task force to introduce "Special Judicial Police" dedicated to tackling "livelihood-related financial crimes," such as voice phishing and illegal private financing. This team is expected to be granted investigative powers, similar to the existing special police for capital market unfair trading.

Improving Financial Convenience and Reducing Costs

The roadmap also includes practical measures to reduce financial burdens and enhance convenience for vulnerable groups. Starting early next year, savings banks will be prohibited from reflecting depositor insurance premiums in their loan interest rates, effectively lowering borrowing costs.

Additionally, the FSS will implement "Dementia-Friendly Financial Guidelines," allowing family members to conduct financial transactions on behalf of patients with dementia. Other measures include streamlining the replacement process for discontinued credit cards and offering interest rate discounts for small business owners who complete designated financial education programs.

Digital Assets and Market Monitoring

As the regulatory landscape evolves, the FSS is also preparing for the second phase of virtual asset legislation by establishing a "Digital Asset Basic Act Preparation Team." To ensure market integrity, two additional market monitoring teams will be added to the capital market investigation unit to crack down on unfair trading practices.

This sweeping reform comes at a time of heightened scrutiny over financial institutions. Coinciding with the announcement, the FSS also launched an early inspection into the BNK Financial Group following controversies surrounding its chairman selection process, signaling a period of intensive oversight across the South Korean financial sector.

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