- Specialized Credit Finance Companies
- Financial Investment Services Providers
- Insurance Companies
Banks are required to file an advance report with the FSC/FSS on the use of new contract provisions and alterations to existing provisions for financial products and services for supervisory review in respect of their appropriateness and fairness to consumers. Provisions that are determined by the FSC/FSS not to unfairly disadvantage or otherwise harm consumers may be reported ex post within ten days of the change. Supervisory actions may ensue for new provisions or alterations that fall short of the expected standards.
New contract provisions and alterations subject to reporting for supervisory review include the following:
- Contract provisions that are aimed at circumventing the bank's legal liabilities stemming from negligence;
- Contract provisions that arbitrarily limit the scope of damages to the counterparty or assign the bank's liabilities to the counterparty without justifiable cause;
- Contract provisions that impose excessive penalty for delayed payment or otherwise improperly demand damages from the counterparty;
- Contract provisions that arbitrarily exclude consumer claims or violate consumer rights that are protected under the law.
Banks must also comply with the duty to provide ex ante disclosures that are material to consumer benefits such as alterations affecting interest rates charged, termination of contracts in effect, and deposit protection.
Specialized Credit Finance Companies
Specialized credit finance companies that set new standard contract provisions or make alterations to existing provisions for financial products and services must file an advance report with the FSC/FSS. Similar reporting is required for contract provision changes sought by the Korean Federation of Savings Banks and the Credit Finance Association of Korea. Supervisory actions may be taken for changes that are deemed contrary to consumer interest.
Financial Investment Services Providers
Financial services companies that engage in financial investment services must report any changes proposed to the standard contract provisions to the FSC/FSS and disclose them on their Internet homepages and through other appropriate means. Korea Financial Investment Association, the self-regulatory organization for the securities and investment industries, may set the standard contract provisions for investment products for its member firms in order to ensure common investor protection practices with advance reporting to the FSC/FSS. The creation or alteration of contract provisions for use with qualified institutional investors must be reported ex post within seven days of the change. Supervisory actions may be taken for changes that are deemed contrary to investor interest.
Insurance companies may offer certain types of insurance products without pre-supervisory review (“discretionary insurance products”) if the product complies with the basic documentation and the contract provision requirements are met for an insurance product. If any of the documentation or contract provision requirements is subject to reporting for supervisory review, the product is deemed nondiscretionary (“nondiscretionary insurance product”) and subject to reporting.
Supervisory review of an insurance product consists of an ex ante pre-sale review for nondiscretionary insurance products and an ex post after-sale review for discretionary insurance products. Documentation for the sale of a nondiscretionary insurance product must be submitted to the FSS for supervisory review at least 30 days prior to the expected date of the sale.
Discretionary insurance products may be offered to consumers without FSS supervisory review in principle. To mitigate the risk of consumer harm from discretionary insurance products, the FSS conducts ex-post supervisory review to focus on defective discretionary insurance products each quarter. Under the intensive review regime, insurance companies submit a list of insurance products sold within ten days from the end of each quarter