The convergence of IT and fin ancial sectors, or ‘financial technology’(here inafter ‘Fintech’), has emerged as a global trend. The trend also affects transaction pattern an d payment environment for domestic consumers and industries with rapidly growing c ross-border commerce and financial trans action on online or mobile platforms.
Investment into the Fintech industry continues to grow around the globe, particularly in the U.S. and the U.K. with high e xpectation about the sector’s growth potential. As global IT leaders such as Alibaba and Apple entered payments market, the Fintech se rvices began to draw attention of the financial sector. Advanced countries including the U. K. actively support the growth of the Fintech indu stry to seize new growth opportunities.
Korea has been less active in f ostering the Fintech sector so far due to regulatory barriers and financial security concern. As an IT powerhouse with the advanced financial industry, Korea has great potential for growth in the Fintech sector. In order for Fintech to bring innovative changes to financial services, we need to overhaul current financial regulatory framework mainly focused on offline serv ices. The FSC will also support financing of Fintech businesses and significantly lower barrier s to entry for electronic financial businesses. Financial security, however, is a prerequisite to t he growth of Fitech sector. To this end, the FS C will maintain a strict stance on security and c onsumer protection, while allowing financial service providers more room in their business o perations.
1. Regulatory paradigm shift Minimization of ‘ex-ante’ regulations
Security review and evaluatio n for means of authentication will be abolish ed to allow financial firms to deliver consumers innovative convenient financial services and introduce more efficient authentication means on their own responsibility. (Revision to regulations related with electronic financial transaction within the second quarter of 20 15)
Instead, financial companies will be required to bolster their internal inspe ctions and assessment, while the FSS will strengthen security oversight with regular and spot inspections. The FSC will establish a legal ground to issue business improvement reco mmendation and order based on internal inspection results by revising the Electronic Financial Transaction Act.
The FSC will abolish and revise mandatory regulations that force use of specific technology such as authorized certificates in order to encourage development of variou s financial transaction methods and prod ucts applying internet technology.1
Clarification of responsibility
In order to encourage active partnership between financial and IT companies, the FSC will revise the Electronic Financia l Transaction Act to stipulate non-financial fi rms with capability to take responsibility of accid ents be jointly held responsible for such accid ents with financial companies in partnership relations.
In order for electronic financi al businesses to effectively compensate consu mers in case of accidents, the current coverage limit of liability insurance will be increased based on transaction volume and past a ccident history.
2. Overhaul of offline servic e-focused financial regulations
The FSC will draft a business model for online-only banks after reviews an d discussion of
relevant factors – e.g. overseas cases, ownership structure,2 possible means to replace the current principle of face-to-fa ce identification, capital requirement, busines s scope, etc. Details will be set out in June 2015 with an aim to submit a relevant bill to the National Assembly within the third qua rter of this year.
The FSC will continue to carr y forward parliamentary approval for the revi sion to the Capital Markets Act now pending in t he National Assembly in order to lay a legal oundation for introduction of crowd funding. In addition, the FSC will complete follow-u p measures within August 2015 such as designat ion of central archival institution3 and introduction of registration scheme for small-scale online investment brokerage.4
Utilization of big data
The FSC will establish favorable environment for utilization of big data by nurturing related experts, establishing database and strengthening big data studies. Card com panies will be allowed to issue mobile cards without issuing plastic cards as a means to e nhance consumer convenience. Outdated regula tions such as the ‘principle of distinction’5 w ill be abolished or improved.
3. Support for Fintech industry
Fintech Support Center
The FSC will co-establish ‘Fi ntech Support Center(tentatively named)’ with related organizations6 to effectively p rovide support to foster Fintech industry. The center will offer comprehensive consultation s ervices related to legal, regulatory, and financ ial matters. The center will be operated in close cooperation with ‘Center for Creative Econ omy’ which is under establishment by the M OSF to maximize synergies.
Financing for Fintech start- ups
Financial support will be provided in various forms through policy banks. The KDB and IBK will give out loans and make investments worth KRW200 billion(KRW100 billion each) within 2015. KODIT and KIBO will provide guarantees.
Lowering entry barriers
Minimum capital requirement eligible for electronic financial business regi stration will be lowered by 50% or more in the mid to long term. ‘Small-scale business uni t for electronic financial business’ will be new ly established to allow limited scope of business for PG and payment deposit businesses. E ntry barriers will be lowered for Fintech startups with small amount of capital.
Facilitate use of electronic payment means
The FSC will revise the Enforcement Decree of the Electronic Financial Transaction Act within the second quarter of 2015 to expand payment ceiling of electronic means to enhance consumer convenience with in creasing e-commerce transaction.
Reshuffling regulatory units for electronic financial businesses
The current 7 electronic finan cial businesses with overlapping functions7will be integrated and be reduced to 3 to 4. Soundne ss standards and regulatory system will be im proved to facilitate IT and innovative companies’ entry into electronic financial industry.
4. Financial Consumer Prot ection with Stronger Financial Security
While pursuing measures to f oster the Fintech services, the FSC will never compromise the principle of financial consume r protection with stronger financial security. Regulatory focus, however, will be shifted from detailed ex-ante regulations to ex-post ones that require thorough inspection afterwards and clear accountability.
Development of data security system
Financial firms and Fintech co mpanies will be encouraged to obtain securi ty certificates such as PCI-DSS or ISMS and in th e long term to develop their own data securi ty system corresponding to global stand ards and domestic financial environment.
Legislative works for data protection and security
Revisions will be made to the Electronic Financial Transaction Act to mak e it clear safety requirements for electronic fin ancial transactions. The FSC will continue t o work closely with lawmakers to pass the revisio n bill of the Credit Information Act to preven t a repeat of personal data breach by financ ial firms.
Stronger oversight on sales o f financial services through online channels
Monitoring and supervision will be bolstered to prevent illegal or unfair business activities through online channels to sell online financial products or services.
*Please refer to the attached PDF for details.