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| Financial Services Commission Chairman Eun Sung-soo announces measures to protect consumers from high-risk, complex financial products at the Government Complex Seoul, Thursday. / Yonhap |
By Park Jae-hyuk
Banks will be banned from dealing with high-risk private equity funds (PEFs), and the minimum amount of money required for individuals' investments in hedge funds will go up to 300 million won ($256,000) from 100 million won, the Financial Services Commission (FSC) said Thursday.
Financial firms that mis-sold financial products will pay up to half of the revenue gained from mis-selling in fines.
In addition, CEOs can be punished if their careless internal control causes massive damage to financial customers.
These came as follow-up measures for the fiasco related to derivative-linked funds (DLFs) that led Woori Bank and KEB Hana Bank customers to lose a massive amount of money.
The FSC attributed the DLF fiasco to financial firms' attempts to avoid regulations on public offering funds, loopholes in financial regulations and financial firms' poor internal controls.
To prevent recurrence of similar tragedy, the regulator came up with a concept of "complex financial product."
Financial products will be categorized as complex ones if they are linked to derivatives and the possibility of investors losing their principal is higher than 20 percent.
Banks and insurers will not be able to sell PEFs and trusts if they are categorized as complex products.
Instead, they should switch to selling public offering funds under stricter regulations.
In this regard, the minimum individual investors can put in hedge funds will go up to 300 million won from 100 million won.
The FSC said the requirement will be tightened, so investors do not make investments unless they can afford to take risks.
The cooling-off period will be offered to a wider range of customers as well.
All investors will be able to have cooling-off periods, if they invest in complex financial products.
Given that the DLF fiasco was mainly caused by banks' mis-selling of financial products, banks that do so will pay half of the profits from the sales in fines. If they violate the principle of suitability, they can face up to 30 million won in fines.
The FSC said it will gather opinions on the measures from different groups for about two weeks, before finalizing the plan.
To protect investors until the revision of laws regarding the follow-up measures, the FSC vowed to enhance its monitoring of banks to oversee whether or not they mis-sell financial products.
"The ultimate goal of the recent measures was to establish a foothold for customer protection, not only to counteract the DLF fiasco," FSC Chairman Eun Sung-soo said in a press conference at Government Complex Seoul.
"In addition, the government will continue to pursue its financial policies based on customer protection and stabilization of financial system."
Meanwhile, the Financial Supervisory Service will make a decision on the amount of compensation to be offered to investors who suffered losses by the end of December. The watchdog's decision on sanctions against Woori and Hana CEOs are expected to be decided by then.
