P2P Act Enforced on the 27th... Must Register with Financial Services Commission Within One Year

The Birth of a New Type of Financial Business After 17 Years Since the Legalization of the Debt Collection Industry in 2003

[Asia Economy Reporter Kim Min-young] The Online Investment-Linked Finance Business Act (commonly known as the P2P Finance Act) will take effect on the 27th. This marks the birth of a new type of financial business for the first time in 17 years since loan businesses were incorporated into the tertiary financial sector in 2003.

On the 26th, the Financial Services Commission and the Financial Supervisory Service announced that they have completed the establishment procedures for subordinate regulations such as the enforcement decree and supervisory regulations of the P2P Act, and that the law will be enforced starting from the 27th.

According to the Financial Services Commission, those who wish to operate a P2P business in the future are required to meet registration requirements such as having their own capital and must register with the Financial Services Commission.

They will also be subject to regulations on business conduct. To assist the use of P2P businesses, P2P companies are obligated to disclose financial and management status.

The disclosure items include cases that have a significant impact on management conditions, such as the occurrence of financial accidents, delinquency rates exceeding 15%, and the sale of non-performing loans.

Furthermore, the combined interest rate and fees must not exceed the legal maximum interest rate for loan businesses, which is 24% per annum.

Linked loans to major shareholders, loan execution before investor recruitment, and mismatches in maturity, interest rate, or amount between investment and loan are prohibited.

To protect investors, P2P operators are generally prohibited from investing on their own account, but it is allowed within the scope of their own capital if they raise more than 80% of the recruitment amount.

Although P2P products do not guarantee principal protection, companies must implement maximum measures to protect investors. To protect investment funds from embezzlement or bankruptcy of P2P operators, deposit institutions (banks, securities finance companies, or mutual savings banks with assets exceeding 1 trillion won) are obligated to separate and store investment funds.

Loan and investment limits are also set. The limit for linked loans that a P2P operator can provide to the same borrower is restricted to the smaller amount between 7% of the outstanding linked loan receivables or 7 billion won.

Investment limits are divided between general individuals and qualified investors. Until April 30 next year, general individuals are limited to 10 million won per company (5 million won for real estate-related investments) and 5 million won per same borrower. Qualified investors can invest up to 40 million won per company and 20 million won per same borrower.

From May 1 next year, the total limit for individuals will change to 30 million won, and for qualified investors to 100 million won. The investment limit per same borrower will be maintained.

With the enforcement of the law, a statutory association will also be established. P2P companies must mandatorily join this newly created statutory organization.

Additionally, a "Central Record Management Institution" that centralizes and manages transaction information through P2P will be operated. The Financial Services Commission will accept applications for companies to operate this institution until the 9th of next month, and the designated company will begin operations from May 1 next year.

P2P companies must apply for P2P business registration with the Financial Services Commission within one year. However, registration will be denied for companies involved in ongoing criminal proceedings, those that have not submitted loan receivables audit reports or have not received qualified opinions, or those with insufficient application preparations. For unregistered P2P companies, P2P guidelines similar to the level of the law will be applied.

P2P is a business model that collects money from an unspecified number of investors and lends it to borrowers, earning interest. P2P companies act as platforms connecting investors and borrowers. They earn profits by charging fees from both investors and borrowers. P2P first appeared in South Korea in 2015 and experienced rapid growth after 2016. According to authorities and the industry, the cumulative loan amount exceeds 11 trillion won, but the delinquency rate also reaches 16%, raising concerns about the urgent need for soundness management in the industry.

The financial authorities stated, "The enforcement of the P2P Act will serve as a turning point to promote the sound development of the P2P industry and protect users," adding, "From the registration process, only companies that meet legal requirements such as soundness and social credibility through strict registration screening will be allowed to enter the P2P business. Furthermore, for registered companies, we plan to strengthen management and supervision of unsound and illegal business activities through regular submission of business reports and thematic inspections." They also said, "We will respond strictly to illegal acts such as fraud, including referring cases to prosecution."

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