Most P2P Financial Companies Have Not Undergone Audits

Regulations Block Bank Loans for Ordinary People
They Are Flocking Here...
Among 139 Companies Registered on the Statistics Site,
106 Are New Businesses That Have Never Been Audited

[Asia Economy Reporter Kim Min-young] It has been revealed that 8 out of 10 currently operating peer-to-peer (P2P) finance companies have never undergone an accounting audit. Although these are newly established companies with only 1 to 2 years of business history, many are known to have raised tens to hundreds of billions of won from investors and issued loans. There are concerns that small-scale companies operating in legal blind spots are exacerbating the instability of the P2P industry.

On the 20th, Asia Economy conducted a full survey of 139 companies currently operating, as disclosed on the P2P statistics site ‘Midrate,’ and found that 106 companies had not received audits from accounting firms. This accounts for 76% of registered companies. The financial authorities have identified about 240 registered P2P finance companies, but only about 130 are actually operating. The remaining 100 companies appear to be registered but are not actively conducting business.

According to the current “Act on External Audit of Stock Companies, etc.,” corporations that meet at least three of the following conditions as of the end of the previous fiscal year are exempt from accounting audits: total assets under 12 billion KRW, total liabilities under 7 billion KRW, sales under 10 billion KRW, and fewer than 100 employees. Currently, P2P companies operate by registering as P2P-linked lending businesses with financial authorities, and the lack of accounting audits indicates that these companies are small in terms of asset size and number of employees.

Of course, the fact that newly established companies have not undergone accounting audits does not necessarily mean investors should avoid investing. The problem is that there have been cases where investors suffered losses after investing in such small-scale companies.

A representative example is ‘Nexrich Funding’ (corporate name Nexrich Daebu). This company, with a cumulative loan amount of 59 billion KRW, has never undergone an accounting audit. Last month on the 10th, the company unilaterally announced a suspension of investment returns and declared its closure. According to an audit report by a law firm on this company, a product labeled as an auto-collateralized loan was actually an unsecured loan without any mortgage rights established. Investors believe the company may have operated with fraudulent intent from the start and are reportedly preparing lawsuits.

Among 33 Companies That Received Audits, 24 Received ‘Unqualified Opinions’... 7 ‘Disclaimed Opinions’ and 2 ‘Qualified Opinions’

There are also companies that submitted audit reports but had issues. Among 33 companies audited last year, only 24 received unqualified opinions. Seven companies received disclaimed opinions, and two received qualified opinions (disagreements between the company and auditor). This means that about one-third had poorly prepared or inadequate accounting records.

‘Blue Moon Fund’ (Blue Moon Capital Social Lending) received a qualified opinion in last year’s audit. A qualified opinion is issued when the auditor judges that the company did not comply with accounting principles or could not find reasonable evidence to form an audit opinion. While not a major accounting problem, the audit was not clean. The company’s CEO recently notified all employees of termination and fled overseas. The whereabouts of approximately 57.7 billion KRW invested by investors remain unknown. Paygate, which handles deposits and withdrawals, detected suspicious transactions and has currently blocked all transactions.

‘Pop Funding’ (Pop Funding Social Lending), with a cumulative loan amount of 498.5 billion KRW, received a disclaimed opinion in last year’s audit. Although the delinquency rate was only 0.5% in June last year, it surged to 97.3% as of the audit date. This company, once praised by the Financial Services Commission as a model of ‘innovative finance’ for providing loans secured by movable assets such as factory machinery and goods, suddenly became overwhelmed by delinquencies. The auditor stated in the report, “We could not verify the appropriateness of the company’s assets, liabilities, and related profit and loss items concerning loan receivables.” Had investors reviewed this audit report before investing, they could have avoided losses.

Related Law Enforcement to ‘Separate the Wheat from the Chaff’

An industry insider said, “When the Online Investment-Linked Finance Act (P2P Finance Act) is enforced on the 27th, companies that do not meet requirements such as capital or appointing compliance officers will be forced to close. Although there is a one-year grace period for registration after the law’s enforcement, the process of ‘separating the wheat from the chaff’ will begin in earnest from next month.” A financial authority official said, “Companies that do not transparently disclose loan scale, delinquency rates, and management status or provide false disclosures should be cautious.”

P2P finance is a business model where an unspecified number of investors lend money to borrowers through an online platform and receive a certain interest. P2P companies earn revenue by charging fees (about 3%) from both investors and borrowers.

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