Funeral prepayment rules tightened; firms with over W100b required to form oversight committees

Prepaid installment businesses, including funeral service providers, will be required to establish internal operating guidelines and draw up regular management plans to ensure stable handling of consumer prepayments. Companies holding prepayments of 100 billion won ($71.8 million) or more will also be required to set up and operate a dedicated prepayment management review committee.

The Korea Fair Trade Commission announced Monday that it has drafted an amendment to its consumer protection guidelines for prepaid installment transactions and will accept public comments through Sept. 14.

The revision aims to establish clear principles for managing consumer prepayments and a self-monitoring framework to ensure those funds remain available to fulfill future contractual obligations.

The amendment first spells out the basic principles governing prepayment management. Prepaid installment businesses must balance stability, liquidity and profitability to ensure they have sufficient funds to supply goods and services and pay cancellation refunds.

Companies that invest heavily in high-risk instruments — such as derivatives, virtual assets or leveraged financial products with a high probability of principal loss — or that guarantee or collateralize the debts of dominant shareholders or related parties, or conduct transactions with related parties on terms that deviate from standard conditions to provide excessive benefits, must thoroughly review the transaction size and terms as well as the recoverability of funds.

Internal controls will also be strengthened. Companies must draw up prepayment operating guidelines covering the basic direction for managing prepayments, the range of permissible investments, and procedures for investment review and risk management. Each fiscal year, or an equivalent period, they must prepare a prepayment operating plan covering liquidity management, investment and risk management, and report it to the board of directors.

Companies whose prepayments stood at 100 billion won or more at the end of the previous fiscal year must establish and operate a prepayment management review committee. The committee will deliberate on or approve the establishment and revision of operating guidelines and plans, as well as individual investment decisions.

When the committee reviews transactions involving dominant shareholders or investments in high-risk assets such as derivatives, virtual assets or leveraged financial products, it must seek opinions from executives or employees of payment-guarantee institutions under the Installment Transactions Act — such as mutual aid associations or banks — or from external experts in accounting or finance.

The Fair Trade Commission said it expects the amendment to strengthen prepayment operating principles and internal controls, providing consumers with a higher level of protection for their prepayments. The revised guidelines will take effect after the public comment period and formal amendment procedures are completed.