The Financial Services Commission announced that a revision bill for the Act on Electronic Financial Transactions (“the Act” hereinafter), with strengthened rules on payment gateway (PG) services, was approved by the National Assembly at the plenary session held on November 27.

In the wake of large-scale payment failures involving PG services in July 2024, the FSC and related government ministries prepared a set of measures intended to bolster the protection of unsettled funds for users (sellers) and strengthen the oversight and supervisory mechanisms on PG services. The revised rules passed at the National Assembly today include these measures drawn up by the government last year.

Key Revision Details

First, PG services will be required to separately manage the total amount (100 percent) of unsettled funds externally in the form of deposit, trust, or payment guarantee insurance. In addition, the externally managed unsettled funds will not be allowed for a transfer or to be used as a collateral, or put up for confiscation or setoff by a third party. A priority right to payments will also be introduced as a legal means to ensure the safe protection of unsettled funds for sellers.

Additionally, the revised rules establish a legislative ground to impose sanctions and penalties (a) if the unsettled funds are found to have been used for some other non-settlement purposes (imprisonment of up to 10 years or up to KRW100 million in fine), (b) when found to be in violation of the external management duty (administrative fine of up to KRW50 million, business suspension for six months or less), or (c) if there is a failure of making payment within the agreed upon settlement period (administrative fine of up to KRW50 million).

However, considering the potential burden of regulatory compliance placed on PG services, there will be a grace period of one year after the promulgation of the revised rules. After the one-year grace period, the external management duty will be phased in gradually in stages from 60 percent of unsettled funds during the first year of implementation to 80 percent for the second year and to 100 percent for the third year.

Second, considering the recent growth seen in the usage of PG services, the capital requirements for PG services will be increased accordingly. Currently, the capital requirement of KRW1 billion is required for the PG services that have the quarterly PG service volume of more than KRW3 billion. However, with the addition of a new quarterly PG service volume criterion (those above KRW30 billion), the capital requirement for these PG services will be raised to KRW2 billion from the current level of KRW1 billion.

In addition, the revised rules will require PG services to re-register the status of major shareholder when there is any change in the status of major shareholder to help prevent disqualified entities from entering the market. When there is a new major shareholder coming onboard, PG services will need to get a new approval and re-register the status of major shareholder. If a PG service continues to operate its business without obtaining a new approval and registering for the change in the status of major shareholder due to disqualification factors, the revised rules provide a regulatory ground to revoke its business authorization and registration.

Third, the revised rules establish regulatory mechanisms (corrective order, business suspension, and revocation of registration) to enable financial authorities to take actions against noncompliance when there is a failure to follow operational guidelines or the duty of external management of unsettled funds.

Moreover, PG services will be required to disclose their compliance status to ensure the protection of users and to more transparently inform users about the status of their funds being managed.

Fourth, the revision provides a more clearly defined scope for PG services, confining them to the business of providing payment services taking place between third parties (not involving oneself) upon receiving fees.

Expectation and Further Plan

With the revised rules in place, it is expected that there will be enhanced protection of unsettled funds held by PG services for their sellers and users. The enhanced entry requirement and the improved oversight and supervisory tools established under the revised rules will help to boost the stability in the electronic payment and settlement system.

The revised Act is expected to take effect in December 2026, one year after the promulgation of the law. The FSC will work to prepare subordinate regulations to make sure a seamless implementation of the revised law, while providing relevant guidelines prior to the implementation to assist the compliance from PG services.

* Please refer to the attached PDF for details.