The Financial Consumer Protection Act, which was enacted to protect the rights and interests of financial consumers and establish a sound market order, took effect on March 25, 2021. The Financial Consumer Protection Act has made the “sales agency and brokerage business of financial products,” which engage in the business of distributing or brokering of financial products, subject to and comply with the relevant regulations, including the Financial Services Commission’s registration, license, and permit requirements.
However, there has been controversy over whether offering of various services (the “Platform Service”) on an online financial platform (the “Platform”), such as comparing and recommending products, proposing financial products tailor-made for customers’ needs, and providing information on various financial products, including insurance policies, is simply an act of advertising and thus outside the purview of the Financial Consumer Protection Act, or whether such activities would amount to a “brokerage” regulated by the Act.
Regarding the issue, the Financial Supervisory Service (the “FSS”) issued a press release on September 7, 2021, stating that if the purpose of the Platform Service is not to provide information but to sell products, such Platform Service may constitute an act of brokerage under the Financial Consumer Protection Act. The following is a summary of the criteria relevant to insurance products:
1. Providing Information on Financial Products
If a Platform Service actively engages in the sale of financial products, for instance, by providing electronic authentication, access to remittance information and contract details, and being paid commissions in proportion to the sales performance, such service would constitute a brokerage.
For example, simply displaying a list of products, such as annuity insurance and savings insurance, constitutes an act of advertising, but if all contract procedures are carried out on the Platform and the sales agent is not markedly displayed on the website (so consumers would likely perceive the Platform as the contracting party), such Platform would be engaging in brokerage.
2. Comparing and Recommending Financial Products
The FSS found that recommending financial products could be considered as “locating potential customers and soliciting subscription to financial products,” which would be part of a sales process. In particular, the FSS found that if the product structure is relatively simple, such as auto insurance and indemnity medical insurance, and if the Platform’s impact on consumers is greater than that of insurers, the Platform’s recommendations are highly likely to be considered as brokerage.
For example, if “insurance” is displayed as one of the services provided on the Platform’s front page, popular insurance products recommended by the Platform is assorted and displayed per type, and detailed product information is provided when a product is clicked, such Platform Service is highly likely to constitute a brokerage.
3. Providing Customized Insurance Information
Regarding the insurance consulting service provided on the Platform, the FSS found that even if the actual consultant is a solicitor hired by an insurance agency and not the Platform, the Platform’s insurance consulting service would constitute an advisory or brokerage business subject to the Financial Consumer Protection Act.
In addition, the FSS found that the “subscribed insurance policy analysis service” constitutes brokerage because it provides more than simple analysis, by offering product recommendation and insurance planning based on the outcome of the analysis, and grants exclusive sales opportunities regarding products so designated by the Platform.
If a Platform Service is viewed as insurance brokerage, the Platform business operator must be registered as an insurance agent pursuant to Article 87 of the Insurance Business Act (the “IBA”). However, under Article 32 (1) 3 of the Enforcement Decree of the IBA, an electronic financial business operator (most of the Platform business operators are classified as such) under the Electronic Financial Transaction Act cannot be registered as an insurance agent. Therefore, under the current laws and regulations, it would be difficult for a Platform business operator to directly provide services that would amount to insurance brokerage.