The Financial Supervisory Service (FSS) is enhancing oversight in areas of growing concern for financial consumers, including excessive debt investment, insurance payout leaks, and information breaches due to the spread of artificial intelligence (AI).
On July 6, the FSS held its third Consumer Risk Response Council, where it discussed key risk factors affecting financial consumer protection and strategies to address them.
Amid increasing volatility in the stock market, the FSS noted a rapid rise in stock-related loans, such as margin loans and stock loans, which heightens the risk of consumer losses from excessive leverage. The balance of margin loans surged from 27.3 trillion won at the end of last year to 37.3 trillion won by the end of last month, with significant increases in forced sales of margin trades.
In response, financial institutions will be required to clearly explain the structure and risks of leveraged investments to consumers and to prevent practices that effectively encourage excessive debt investment. The FSS will also continuously monitor the aggressive marketing strategies of asset management companies.
In the insurance sector, the FSS identified the actions of third parties, such as medical institutions, that could lead to increased insurance premiums due to payout issues. To manage the 'third-party risk' associated with excessive medical treatments or cost inflation, the FSS plans to implement comprehensive guidelines for managing third-party risks related to insurance payouts, covering all stages from product design to sales and post-payment management.
Additionally, the FSS is focusing on the so-called 'payback' practices, where some nursing hospitals refund part of the out-of-pocket expenses to cancer patients. If evidence of insurance fraud is found during investigations, the FSS plans to refer cases for prosecution and strengthen cooperation with relevant agencies, including the Ministry of Health and Welfare and the National Health Insurance Service.
The FSS also expressed concerns about potential consumer harm from information theft and hacking incidents due to the expanded use of AI. It pointed out that the concentration of large amounts of personal credit information in big data platforms adopted by financial institutions for AI research and customer analysis could lead to misuse if control mechanisms fail.
Furthermore, the FSS is pursuing reforms to protect consumers from illegal financial practices. It will conduct joint inspections of registered lending companies that charge high interest rates by illegally using vehicles as collateral and will strengthen internal controls regarding the trading of personal data by insurance agencies and unfair replacement sales.
Lee Chan-jin, the head of the FSS, stated, "In a highly volatile market, financial institutions must fulfill their responsibilities as risk managers for customer assets. We will swiftly respond to consumer harm factors, including third-party risks inherent in insurance products, illegal financial practices, and AI-based financial incidents, in cooperation with relevant agencies."
* This article has been translated by AI.
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