After the Hong Kong H-share index equity-linked securities (ELS) debacle, the Financial Supervisory Service will tighten regulations on banks' sales of non-deposit products and focus its supervisory capacity on tackling online fraudulent payments and insurance fraud. The aim is to move away from cleaning up after consumer harm occurs and instead check risks from the product design and sales stages.
On the 27th, the Financial Supervisory Service (FSS) said it held the fourth Financial Consumer Protection Advisory Committee meeting chaired by Lee Chan-jin, the FSS governor, and discussed six agenda items, including improving banks' non-deposit product systems, financial investment firms' advertising rules, responses to insurance fraud, prevention of online fraudulent payments, and credit card companies' marketing consent systems. The Financial Consumer Protection Advisory Committee is a consumer protection advisory body directly under the governor that launched in March.
First, when banks sell non-deposit products made by external manufacturers, such as funds and trusts, they will revise MOUs and contracts to clarify consumer protection responsibilities between the manufacturer and the distributor. For products with complex structures or a risk of large-scale losses—such as high-risk financial investment products or overseas alternative investment funds—the plan is to mandate participation by external experts and the manufacturer in the bank's internal review process.
For products such as ELS that are rated investment risk grades 1 and 2, the frequency of regular notices provided to consumers will be shortened to at least once a month. Guidance will also be expanded to include early-termination fees, redemption conditions, and the amount receivable upon early termination. To let consumers compare product characteristics and fee structures by subscription channel—through banks or securities firms—the required items in offering documents will be expanded. The Financial Supervisory Service (FSS) plans to incorporate the changes into the "model internal control standards for banks' non-deposit products" in the second half of this year after gathering opinions.
About 100 people, including the insurance fraud response unit and insurers' special investigation units (SIU), will be mobilized to tackle insurance fraud. In the second half, authorities will concentrate investigations on clinics and hospitals with clear suspicions and organized participation by many medical personnel, such as copay kickbacks to attract cancer patients and insurance fraud involving physician-led obesity medications.
For online fraudulent payments, the introduction of an artificial intelligence (AI) and Machine Learning-based fraud detection system (FDS) is being considered, along with mandating multi-factor authentication for high-risk transactions. For credit card companies' marketing consent forms, card-related benefits will be separated from consent for non-card products and services, and guidance will be strengthened to clarify that consumers can withdraw consent or request to stop advertising at any time.