Recently there are so many lawsuits being filed against domestic and foreign banks in Korea with regard to the bank’s irresponsible fund sale.  The Korean fund buyers are alleging the losses in the funds which are still on-going were caused by the fund-sellers’ not informing sufficient information on the risk and possibilities of losses when they put the money to the funds.

As a matter of law, Korean court has ruled that the banks have legal duties to inform the customer sufficiently of the structure of the investment such as fund or option transaction and the risk of possible losses when they solicit the customers for investments.  If they neglect that obligation, it constitutes a breach of contract and the bank should pay for the customer’s damages.  It is, however, very rare the court orders the bank to pay the entire of damages.  Instead, the bank is usually ordered to pay certain portion of the damages only.  That is because the court considers the customers’ carelessness in making the just amount of damages.

In this regard, it is notable for the banks that the Capital Market Consolidation Act, which took effect in February, slapped new regulations on fund sellers, requiring them not to market risky products to investors who register as risk-averse on a mandatory questionnaire.  The government hopes the newly enacted law reduces the irresponsible sale practices.

Here is a related news article.

© 2009 Wonil Chung, a Korean financing lawyer / Chung & Partners, a Korean Business Law Firm.  All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.