The Financial Supervisory Service is launching a large-scale "mystery shopping" initiative targeting misselling of financial products. It is the first on-site inspection since the overhaul of the consumer protection supervisory framework. Equity-linked securities (ELS), which suffered large losses during past stock slumps, are expected to be among the key inspection targets.
According to the financial sector on the 4th, the Financial Supervisory Service (FSS) issued a bid notice for "mystery shopping services related to financial product sales" in mid last month and began the process of selecting a contractor. Bidding registration closes on the 8th, with a contract to be signed on the 16th. The project will run for about seven months, from this month through the end of the year.
The inspection targets funds, derivative-linked securities, over-the-counter derivatives, variable insurance, and related services. The inspection will focus on face-to-face sales channels such as bank, securities firm, and insurer branches, as well as insurance planners, and will include non-face-to-face channels such as telemarketing (TM) and direct channels if needed.
The industry expects ELS, where volatility has increased due to the recent surge in stock prices, to be a core inspection target. There is precedent for large losses in 2024 on products tied to the Hang Seng China Enterprises Index, prompting concerns about misselling even in a rising market, observers said. ELS are investment products whose returns are determined by movements in stock prices or stock indexes.
Mystery shopping is conducted by having investigators pose as ordinary consumers and visit financial company branches or contact call centers. The focus will be on whether sales staff fully explained the risks and key details of products, recommended products suitable for consumers, and complied with suitability and appropriateness principles. The survey is expected to be conducted about 850 times.
This move is part of the "consumer protection supervisory framework overhaul" being pursued by the Financial Supervisory Service (FSS). In December last year, the FSS unveiled a "road map to improve financial consumer protection," saying it would shift from post-event responses centered on complaints and disputes to a system that manages risk factors in advance throughout the entire process, from product development to sales and after-sales management.
In particular, in March, it announced a policy to expand mystery shopping focused on products with high misselling risk and to diversify inspection methods and timing. It also said it would shorten evaluation cycles and expand targets to intensify on-site inspections. This service contract is the first case of that policy being applied to actual supervision.
An FSS official said, "We have reinforced the misselling inspection function by addressing the limitations of existing mystery shopping," adding, "As the importance of financial consumer protection has grown, we have overhauled the inspection framework and methods across the board."