South Korea's financial regulator and the securities industry are overhauling advertising procedures for investment products to stamout false and exaggerated ads. A new advertising committee will be set up within the Korea Financial Investment Association (KOFIA) to bring ads on firms' own channels under review, and clearer standards will be established for imposing penalties on violations.
The Financial Supervisory Service (FSS) and KOFIA announced the comprehensive plan at a briefing held on the 1st at the Financial Investment Center in Seoul's Yeouido district. "We need to correct the view that advertising is merely a marketing tool for recruiting investors," Seo Jae-wan, deputy governor of the FSS, said in opening remarks. "In particular, many investors buy exchange-traded funds after checking only the advertisement, so false or exaggerated advertising by asset managers can effectively amount to misselling."
The plan is designed to strengthen investor protection across the entire advertising process at financial investment firms, from production and review to follow-up management.
Under the plan, chief consumer officers at financial investment firms must take part in decisions on advertising reviews and assess in advance the potential for investor harm. Firms must also check beforehand whether market and industry analyses provided externally contain information that could induce trading in individual stocks.
KOFIA will establish an advertising committee including representatives from the industry, consumer groups and the media, and will expand the range of ads subject to review. The committee will decide key policies related to the association's advertising reviews.
Until now, video ads distributed through companies' own channels such as YouTube were excluded from KOFIA review, leading to variation in internal standards across firms. Going forward, newly listed ETFs, high-risk investment products and products designated by the advertising committee will be added to the list subject to association review.
New standards for imposing penalties related to advertising will also be introduced. KOFIA's criteria for sanctioning advertising violations had been unclear, making penalties hard to predict, but the changes are expected to improve the effectiveness and fairness of the association's sanctions.
The plan also calls for expanded use of KOFIA's reporting center for false and exaggerated ads, regular follow-up inspections of published ads at least once a year, and mandatory prior review of ads that use operators of online channels.
KOFIA's rule revisions to implement the plan are set to be completed next month. Implementation is scheduled for January of next year, taking into account the time firms need to reflect the changes in internal rules and adjust work procedures.
