The Financial Supervisory Service improved how products are explained, including refining terms in fund prospectuses, so consumers can understand public offering funds easily and accurately. It plans to prepare specific guidelines and forms for corporate disclosures by the first half of next year.
The Financial Supervisory Service (FSS) said on the 21st that it formed a working-level council with the banking and financial investment industries and prepared measures to improve explanation practices after gathering opinions on difficulties at public offering fund sales sites. The FSS operated a "public offering fund product explanation rationalization task force (TF)" from April to June.
To fulfill the duty to explain during the sale of public offering funds, the industry currently uses and provides a core prospectus, a simplified investment prospectus, and an investment prospectus. However, they were not organized for easy explanation, and contents were often duplicated and dispersed. In addition, inconsistent terms and expressions led to information overload, hindering effective explanations.
The Financial Supervisory Service (FSS) viewed this as causing unnecessary time consumption and distracting consumers' attention.
To address this, the Financial Supervisory Service (FSS) integrated dispersed and overlapping explanation items from multiple prospectuses into the core prospectus and changed the order of items to make the product easier to understand. In addition, to ensure consistent prospectus preparation between manufacturers—asset management companies—and sellers such as banks and securities firms, the order of items in the manufacturer's simplified investment prospectus was changed to match the core prospectus.
In addition, when each financial company conducts prior review of a product prospectus, it must use a checklist to thoroughly assess consumer comprehension of the document under the responsibility of the compliance officer or chief customer officer (CCO). If the assessment results are low, the prospectus must be rewritten or the relevant details shared with the product department and others.
The agency conducted a research project with a consumer group to refine terms and sentences in the prospectus to match consumers' level of understanding, and based on the results, it also prepared standards for revising prospectuses. To encourage fulfilling the duty to explain with a focus on key points, it is reviewing revisions to the mystery shopping checklist, such as adjusting weightings.
In other measures, when recommending multiple funds at the same time, common items can be explained only once to simplify explanations, and for ultra-low-risk (grade 6) products with an extremely low risk of principal loss, the assessment of investment amount propensity may be omitted during suitability evaluations. Currently, each time a fund is sold, a financial company must identify the investor's investment propensity information at that time, such as investment purpose and intended investment period.
The Financial Supervisory Service (FSS) expected that the introduction and use of the integrated core prospectus would prevent unnecessary time consumption caused by cross-using multiple prospectuses. An FSS official said, "By refining terms and focusing on core content in explanations, consumers can understand funds easily and accurately, which can raise subscription satisfaction."
The official added, "We will implement follow-up measures such as revising guidelines and corporate disclosure forms and preparing integrated prospectuses by the first half of next year, and establish systems within financial companies."