Investors with Remaining Funds... Investors' Money Tied Up in Shutting Down P2P Platforms (Comprehensive)

One in Four P2P Association Member Companies is Virtually Closed for Business

[Asia Economy Reporter Kim Min-young] It has been revealed that one-quarter of the member companies belonging to the Korea P2P Finance Association, formed by peer-to-peer (P2P) finance companies, are effectively in a state of business suspension. Even companies affiliated with the P2P Association, which still hold some credibility, are reportedly feeling burdened by the stricter business conditions ahead of the implementation of the Online Investment-Linked Finance Act (P2P Act) next month and are shutting down their operations. If P2P companies close, investors may lose all their invested funds, making damage inevitable.

According to financial authorities and related industries on the 24th, a check of the websites of 46 P2P Association member companies revealed that 11 have either suspended operations or entered the process of closure. Company A has not handled new investment products since March, and Company B has not sold products since December last year. Company C, which started business in 2016 and is relatively well-known in the industry, also stopped launching new products after August last year. This company is currently engaged in repayment and interest payment operations for existing products. A P2P industry insider explained, “As the P2P Act approaches, with requirements such as appointing compliance officers, strengthening capital requirements, and submitting audit reports, the business environment is becoming increasingly stringent, leading to more companies shutting down.”

Company D has even announced its closure. In an announcement last April, the company stated that due to ongoing management difficulties, it would return its loan business registration certificate to the Financial Supervisory Service. The company said in the notice, “All loan business functions except for the collection of existing loans will be suspended, and the closure process will effectively proceed.”

Sudden Closure Despite Outstanding Loan Balances, Investors Suffer Losses

The problem is that when a P2P company shuts down with outstanding loan balances ranging from several hundred million to several billion won, investors may lose their principal entirely. Among the companies that have suspended operations, some continue loan repayment tasks to prevent investor damage, but many cases result in delinquency due to lack of collection efforts.

In the case of Company D, the outstanding loan balance is about 2.6 billion won, and it has publicly announced a 100% delinquency rate. This means that no repayments on existing loans are being made at all.

Some companies have announced a 0% delinquency rate. However, this is due to selling claims overdue by more than 30 days to collection agencies, creating the appearance of no delinquencies, but industry insiders say investors are still incurring losses.

On top of the distrust toward association members, there are about 240 companies flooding the market, and the insolvency and closure possibilities of non-member companies are not even being tracked.

According to P2P statistics firm Midrate, as of this date, the cumulative loan amount reaches 10.9608 trillion won, and the outstanding loan balance is 2.3658 trillion won. The delinquency rate averages 16.61%, more than tripling compared to 5.5% at the end of 2017 in just two and a half years.

Financial Authorities Conduct Full Survey of P2P Companies

The financial authorities have demanded that all P2P companies submit audit reports by the 26th of next month and have urged investors to exercise caution. This is to check whether there are more cases like ‘Nekpun’ and ‘Popfunding,’ which have recently been under police investigation or had arrests made for fabricating loan claims to embezzle investment funds or engage in “Ponzi” schemes.

The financial authorities plan to conduct registration reviews only for qualified companies, and for those unqualified or failing to submit inspection materials, they will conduct on-site inspections followed by guidance to convert to loan business or close down.

Additionally, the financial authorities have revised and announced P2P loan guidelines that cap individual investments per company at 10 million won and real estate loans at 5 million won. These guidelines are valid until August 26 next year, allowing about a one-year grace period after the law’s enforcement.

The financial authorities also restricted unhealthy business practices such as Ponzi schemes by requiring that the maturity, interest rate, and amount of loans executed with investment funds match, and by prohibiting discrimination against specific investors or offering excessive rewards.

P2P loans place responsibility for investment outcomes on investors. P2P companies create platforms that connect investors and borrowers and earn fees from both sides.

The financial authorities stated, “Investors should be cautious as companies promising loss compensation, excessive rewards, or high returns are more likely to engage in mis-selling and handle poor-quality loans.”

This content was produced with the assistance of AI translation services.