Banks push back against proposed no-fault compensation for voice phishing victims

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The government is pressing ahead with plans to introduce a no-fault compensation scheme that would require banks and other financial firms to reimburse victims of voice phishing scams regardless of whether they were at fault, despite mounting industry opposition, according to officials Sunday.

Banks argue the measure unfairly holds them liable for crimes they neither have the authority nor the means to investigate, warning that the additional costs could ultimately be borne by consumers through higher fees or less favorable lending rates.

Financial Services Commission Chairman Lee Eog-weon reaffirmed the government’s commitment to the initiative at a meeting last month with the heads of Korea's five largest financial groups — KB, Shinhan, Hana, Woori and NH NongHyup.

“We will actively pursue the introduction of a no-fault liability system to strengthen the financial sector’s accountability for phishing crimes and provide more effective relief for victims,” Lee said.

Two bills incorporating the measure are pending in the National Assembly. With the financial regulator throwing its weight behind the proposal, discussions are expected to resume during the second half of this year’s parliamentary session. The proposed compensation cap ranges from 10 million won ($6,850) to 50 million won.

Behind the drive is a concern that voice phishing schemes have grown too sophisticated for consumers to guard against through vigilance alone.

Losses from telecommunications-based financial fraud climbed 14.1 percent year-on-year to 433.8 billion won in 2025, the highest level in five years, according to the Financial Supervisory Service.

Authorities estimate the industry would pay roughly 281 billion won a year if the compensation cap were set at 50 million won.

The banking industry argues that the proposal unfairly concentrates the financial burden on lenders in charge of the final transfer of funds, adding that most voice phishing scams originate through telecommunications networks.

“Banks are left to shoulder the entire burden for crimes that exploit weak identity verification procedures and telecommunications infrastructure, despite having no investigative powers,” one industry official said.

There have also been concerns that the system could invite abuse. “Once a no-fault compensation system is introduced, there can easily be attempts to exploit it,” the official added.

Guaranteed reimbursement could create moral hazard by encouraging fraudulent claims or collusion with criminal groups. The National Policy Committee raised similar concerns in a review released in March, citing potential legal issues and unintended side effects associated with the proposal.

The Korea Federation of Banks has urged lawmakers to adopt a shared-liability approach, noting that compensation responsibilities should be divided among financial institutions, telecommunications companies and the government.

“Voice phishing can only be prevented and addressed through the combined efforts of multiple parties, including consumers remaining vigilant, telecom companies blocking spam and smishing messages, financial institutions detecting suspicious transactions and law enforcement agencies dismantling criminal organizations and recovering stolen funds," the federation said in a statement.