The Microstructure of Mis-Selling: Financial Investment Markets and Regulation in Korea


  • Chul Choi Associate Professor, Consumer Economics, Sookmyung Women’s University, Seoul, Korea



Mis-selling, suitability principle, explanation duty, financial investment, financial consumer protection


Financial consumer protection has been ever strengthened around the world after the Global Financial Crisis. Nonetheless, there occurred mis-selling events that caused massive damage to financial consumers and mis-selling still accounts for the largest proportion of financial consumer disputes and complaints recently filed in Korea. Based on the regulatory framework in Korea, this study aims to explore the microstructure of mis-selling, that is, the major influential factors and their interactions. For this, an analytical model is proposed concerning the suitability principle and explanation duty in financial investment markets. The model consists of three basic components: the types of investors, a financial services company’s objective of profit maximization, and the damage compensation structure set by the regulator. Using the model, the simulation results provide meaningful implications. Strict liability turns out to be effective to prevent mis-selling. The suitability principle is more prone to be violated than the explanation duty and therefore more emphasis should be placed on the former in terms of efficient regulation. Furthermore, this study found a meaningful link between business conduct regulation and financial education, which are the two pillars in financial consumer protection.


Received: 4 October 2023 / Accepted: 19 Dcember 2023 / Published: 5 January 2024


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Research Articles

How to Cite

The Microstructure of Mis-Selling: Financial Investment Markets and Regulation in Korea. (2024). Academic Journal of Interdisciplinary Studies, 13(1), 1.