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The Impact of the Consumer Protection Act

Korean Financial Planning Professional Sunho KimBy Sunho Kim, CFP

The topic that has newly emerged, in the aftermath of the global financial crisis that swept the world in 2008, is financial consumer protection. Korea received a lot of attention from the world over this topic, when the 2010 G20 Summit Meeting in Seoul adopted financial consumer protection as part of the agenda for the next meeting. A year later, in the Financial Ministers and Central Bank Governors Conference of October 2011, the topic took a concrete form of “The G20 High-Level Principles on Financial Consumer Protection.”

The principles stipulated that the two mechanisms of oversight and financial consumer protection must work properly to ensure trust and confidence in the financial industry. The point that oversight cannot be ruled out even if financial consumer protection is guaranteed has already been made by Lauren E. Willis in her 2008 piece, “Against Consumer Financial-Literacy Education“. The principles further set forth that proper oversight includes prudential regulation, governance of financial companies, and competition in financial markets, while proper consumer protection comprises protection, access, and financial education.

The Consumer Protection Act

One overlapping characteristic of oversight and financial consumer protection is the independence of financial consumer protection authority. While Canada, Australia, U.K. and the United States have long had an independent authority, it was only early this year that South Korea launched the Financial Consumer Protection Office as a quasi-independent organ of the Financial Supervisory Service. This was a result of a tentative response to the failure of the Financial Consumer Protection Bill to pass last year. If the bill is made into a law, it will not only provide a systematic framework for financial consumer protection, but a major engine for financial education and a legal status for financial planning business, as well. Unlike Korea, such countries as the UK, Australia, the Netherlands, and India have already, or are scheduled to, put to work strict rules on advisory services, such as a prohibition of sales commission to ensure the objectivity and professionalism of financial planners and the protection of financial consumers.

Financial Education and Business Conduct

The two topics, among the 10 principles set forth by the G20 High-Level Principles on Financial Consumer Protection, that affect financial planners most are business conduct and financial education. With regard to business conduct, the principle states:

“Financial services providers should assess the related financial capabilities, situation and needs of their customers before agreeing to provide them with a product, advice or service. Staff (especially those who interact directly with customers) should be properly trained and qualified. Where the potential for conflicts of interest arise, financial services providers and authorized agents should ensure proper disclosure, have in place internal mechanisms to manage such conflicts, or decline to provide the product, advice or service.”

This content would not be new to CFP professionals as they already follow rules of conduct and a strict Code of Ethics. Therefore, financial planners should not stop at the level of complying with the Code of Ethics and the rules of conduct, but act in so stimulating and exemplary a manner as to upgrade the attitude of wholesale financial market participants toward financial consumer protection.

In respect to financial education and awareness, the principles stipulated:

“Appropriate mechanisms should be developed to help existing and future consumers develop the knowledge, skills and confidence to appropriately understand risks, including financial risks and opportunities, make informed choices, know where to go for assistance, and take effective action to improve their own financial well-being.”

Financial planners are providing customers with education during their services. In addition, they contribute to customers’ financial well-being with free consultations and/or education during annual events such as Financial Planning Day or Financial Planning Week.

KFPA’s Financial Planning Day 

South Korean financial planners are preparing two major programs for September in relation to financial consumer protection. On the 12th, a Financial Planning Day will be held all around the country. And throughout the entire month, financial education will be carried out for the students from 22 high schools. There will be an opportunity to level up the efforts exerted, as well as the achievements accumulated through the efforts, for the past ten years. The goal is to impart financial planning, which includes:

  • free financial consultations
  • financial educations for the public
  • financial educations for elementary, middle, and high schoolers

On a sidenote, all of these objectives have been pursued on a constant basis, since the establishment of KFPA.

The Future of Financial Planning 

In 1969, 13 financial planners gathered at Chicago O’Hare Airport and gave birth to the financial planning profession. 3 decades later, KFPA was founded in 2000. This September, the financial planners of Korea, using their past 12 years of experience and knowhow, will make a concerted effort to impart the true value of financial planning to Korean financial consumers. We hope our effort will spread all over the financial planning world.

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