Which bodies regulate the provision of fintech products and services?
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) are the two main institutions responsible for enforcing regulations on fintech products and services.
The FSC is a government institution primarily responsible for creating financial policies. The FSS is responsible for supervising and inspecting financial companies as an enforcement agency of the FSC.
What activities trigger a licensing requirement in your jurisdiction?
Generally, an entity that intends to engage in any of the following activities involving financial investment instruments must obtain the licenses and approvals required under the South Korean Financial Services Act Financial Investment and Capital Markets (FISCMA). Under FISCMA, a financial investment product is defined as a product acquired under an agreement to pay money or other assets at a specific time in the present or future, in the intention to make a profit or avoid a loss, where there is a risk (i.e. investment risk) that the total amount of such funds or assets paid or payable to acquire such product may exceed the total amount of funds or other assets already recovered or recoverable from this product:
Classification of cases
Investment trading activity
Sell and buy investment financial instruments for own account
Investment brokerage activity
Sale and purchase of financial investment instruments, their brokerage, on behalf of third parties
Collective investment business
Pooling the investments of two or more investors and managing the investment on behalf of the investors
Investment advice activity
Provide advice on the value of investable assets or investment decisions
Discreet investment management activity
Make partially or fully discretionary investment decisions and manage investments on behalf of clients
Provide a trusted service
Depository business may only be conducted by banks or savings banks licensed as a bank or savings bank under South Korean laws.
Similarly, the lending business can only be carried out by lenders registered under the Law on Registration of Money Lending Businesses and Protection of Users of Financial Services (Lending Business Law) or by financial companies authorized to grant loans under the relevant regulations.
Most payment services are governed by the Electronic Financial Transactions Act (EFTA), and different licenses or registrations under EFTA may be required on a case-by-case basis, depending on their specific scope of business. For example, registration under EFTA may be required to issue electronic means of payment, and transmitting or receiving payment information or mediating product settlement requires a payment gateway license.
Are consumer loans regulated in your jurisdiction?
Under the Lending Act, registration as a lender is required to engage in lending activities. However, credit finance companies such as banks under the Banking Law and specialized credit companies under the Law on Specialized Credit Financial Activities are allowed to engage in lending business without separate registration in as a lender.
The Lending Business Act also regulates the maximum interest rate. The maximum interest rate for consumer loans is limited to 20% per annum from the date of this tender.
When soliciting consumers or advertising, credit companies and lenders must comply with the standards set out in the Financial Consumer Protection Act, which was enacted on March 25, 2021 to provide standards of protection consumers for all financial products, including loans.
Secondary market loan trading
Are there any restrictions on secondary market commercial lending in your jurisdiction?
Loan receivables can only be acquired by entities specifically listed in the Credit Business Act, such as registered commercial loan collection entities, banks and specialized credit companies.
Collective investment schemes
Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative financial products or services fall within its scope.
Collective investment activities and collective investment schemes are regulated by FISCMA. FISCMA also regulates crowdfunding platforms. However, other alternative financial products and services, such as peer-to-peer (P2P) lending, are regulated by different regulations.
Alternative investment funds
Are alternative investment fund managers regulated?
Collective investment schemes and their managers are regulated by FISCMA. Assuming alternative investment funds are categorized as collective investment funds, to manage alternative investment funds in South Korea, the fintech company must obtain the required license and comply with regulations under FISCMA.
Peer-to-peer loans and marketplace
Describe any specific peer-to-peer lending or market regulations in your jurisdiction.
P2P lending platforms must register and comply with various regulations under the Online Investment-Related Finance Act, including disclosure of financial status and corporate structure and a ban on engaging in high-risk practices. In addition, P2P lending investors are subject to investment limits which are determined in proportion to their income.
Describe any specific crowdfunding regulations in your jurisdiction.
Equity-based crowdfunding is regulated by FISCMA. Fintech companies wishing to provide crowdfunding services must register with the FSC. Although subject to more lenient regulations than traditional financial services, regulations relevant to the promotion of crowdfunding activity are also subject to several restrictions. For example, the maximum amount of investment each company can raise through crowdfunding is 1.5 billion won per year.
Reward-based crowdfunding and donation-based crowdfunding are not subject to any particular restrictions. However, depending on the specifics of their business model, rewards-based crowdfunding business entities may be required to register as mail-order distributors under the Electronic Commerce Consumer Protection Act.
Describe any specific invoice trade regulations in your jurisdiction.
Invoice trading is not subject to any specific regulations in South Korea.
Are payment services regulated in your jurisdiction?
Payment services are primarily governed by EFTA, and any entity wishing to engage in such activity must register with the FSC and comply with the relevant obligations.
Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?
Currently, open banking is not subject to any specific regulations in South Korea. Typically, financial institutions and electronic financial business entities rely on private arrangements for open banking in cooperation with financial regulators.
For reference, an EFTA Amendment Bill is currently pending, which includes the legal foundations and requirements for open banking.
Should fintech companies that sell or market insurance products in your jurisdiction be regulated?
Anyone wishing to sell insurance products must be registered as an insurance agent, insurance adviser or insurance broker under the Insurance Business Act. In addition, the sale of insurance products is governed by the Financial Consumer Protection Act.
Are there any restrictions on providing credit references or credit information services in your jurisdiction?
Under the Credit Information Use and Protection Act, any entity wishing to provide credit references or information to a third party must obtain an appropriate license depending on the specifics of the business of the entity.
To obtain such a license, applicants must meet complex requirements. For example, in most cases, licenses are only granted to entities that are 50% or more owned by financial institutions (eg banks or financial holding companies).