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Newsletter | April 2017, Issue 1
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INSURANCE
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Korea’s Top Financial Regulator Reports Its 2017 Work Plan to the Acting President of South Korea
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On January 5, 2017, the Financial Services Commission (“FSC”) reported to the Acting President its 2017 work plan for the financial service industry including insurance industry covering the following: (i) thorough regulatory measures against risk factors in the financial services market, (ii) enhanced protections for consumers of financial services, and (iii) reinforcement of the role of financial services in revitalizing the flat Korean economy.
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| 1. |
Measures against Risk Factors in the Financial Services Market
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In order to take appropriate and thorough measures against certain risk factors in the financial services market, the FSC plans to closely examine whether the financial services sector is capable of absorbing any unanticipated shocks in the event certain risks materialize pursuant to such risk factors. A task force within the Financial Supervisory Service (“FSS”) will be formed, which will conduct stress tests with strict standards for different businesses within the financial services industry.
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Further, the FSS has decided to prepare a multi-phased plan to minimize the impact of the newly adopted International Financial Reporting Standards known as “IFRS17” (which now replaces IFRS4). IFRS 17 is scheduled to take effect in 2021 for insurers.
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| 2. |
Enhanced Protection for Financial Services Consumers
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Prior to the end of the first quarter of 2017, the FSC said it will prepare and submit a draft proposal of the Financial Consumer Protection Act to the National Assembly. The draft includes aspects on: (i) strengthening consumers’ choices through re-classification and systemization of financial services products, along with sales and the provision of expertise; and (ii) implementing a comprehensive consulting business for financial services products (including deposit, loans, guarantee and surety products, in addition to investment products) for the use of professional and unbiased consulting services by the public.
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Moreover, during the second half of 2017, the FSC will promote its plan to improve the system with greater transparency to require disclosure of total commissions borne and paid by consumers. The plan will require the disclosure of the amounts and payment structures of sales commissions for distribution channels of financial services products as they are received from financial institutions, and require an explanation to be provided to consumers.
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| 3. |
Strengthen the Financial Services Sector to Invigorate the Korean Economy
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The FSC plans to implement changes that will have immediate impact on the industry by improving communications with financial institutions and consumers. Specifically, the FSC plans to: (i) improve the user experience of the financial regulator’s online portal used by consumers to file complaints or request “Authoritative Interpretations” on financial services related regulations; (ii) revitalize the private letter ruling system by collecting requests from industry associations bi-annually, and provide prompt responses to requests; (iii) maintain and operate the Ombudsman’s Blog beginning in the 1st quarter of 2017; and (iv) organize a quarterly Task Force and site inspection teams for foreign-based financial services companies.
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Additionally, the FSC is determined to improve the regulatory environment to increase the competitiveness of the insurance industry and to promote the autonomy of insurers.
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For instance, the FSC is planning to: (i) sponsor legislation that allows the private sector (e.g., insurance associations on behalf of insurers) to draft/modify standard policy forms (i.e., the association can prepare the policy form for comment, revisions and approval by the FSS); (ii) submit an amendment to the Insurance Business Law to the National Assembly relaxing ex-ante regulations (e.g., investment caps or restrictions on financial solvency ratios) on an insurer’s investment in real property, foreign assets, and derivative products (during the 1st quarter of 2017); (iii) relax the rules on the permitted marketing methods and product explanations to promote the sales of “single-type policies” (during the 1st half of 2017); (iv) revise the standards for payment of insurance benefits to improve the quality of auto insurance products, and prepare for technological advances (e.g., electric cars and self-driving cars); and (v) switch to a post-facto reporting regime regarding an insurer’s officer holding concurrent positions in the insurer’s financial holding company, and delegation of particular business functions to the insurer’s financial holding company and expand the scope of information sharing among the subsidiaries of the insurer’s financial holding company.
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