Financial Services Commission and Bank of Korea Clash Over 'Payment and Settlement Regulations'

Financial Services Commission Pushes Amendment to Electronic Financial Transactions Act
BOK Says "Provisions Infringing Core Duties Must Be Withdrawn"

Image source=Yonhap News

[Asia Economy Reporters Kim Hyo-jin, Kim Eun-byeol] The Financial Services Commission (FSC) is expected to face controversy as it pushes for the introduction of new regulations related to the payment and settlement system operated by the Bank of Korea.

A clash between the FSC and the Bank of Korea is inevitable. The Bank of Korea has clearly opposed this move and is demanding the withdrawal of problematic provisions.

According to financial authorities and political circles on the 18th, the FSC recently prepared an amendment to the Electronic Financial Transactions Act and submitted it to Yoon Kwan-seok, Chairman of the National Assembly's Political Affairs Committee, requesting its proposal. The FSC announced the 'Comprehensive Digital Finance Innovation Plan' in July and revealed plans to submit the amendment to the Electronic Financial Transactions Act to the National Assembly in the third quarter of this year.

The core of the amendment is to ease financial regulations on fintech companies and big tech firms. Among these, the issue lies in the provisions related to the 'Electronic Payment Transaction Clearing Industry.'

The amendment establishes the 'Electronic Payment Transaction Clearing Industry' and grants the FSC authority to approve, request data submission, and conduct inspections related to it. However, this is seen as infringing on the authority of the Financial Monetary Committee (FMC) stipulated in the Bank of Korea Act.

Article 28 of the Bank of Korea Act stipulates that the Bank of Korea's FMC deliberates and resolves fundamental matters concerning the operation and management of the payment and settlement system.

A senior official from the Bank of Korea pointed out, "(The FSC amendment) inevitably conflicts with the operation and management of the payment and settlement system carried out by the Bank of Korea under the Bank of Korea Act, and not only infringes on the Bank of Korea's authority but also constitutes overlapping regulation."

The Bank of Korea has been negotiating since March with the FSC on the establishment and designation of the digital payment transaction clearing industry and the legalization of open banking at the FSC's request.

The official also emphasized, "In a situation where policy authorities must concentrate all their capabilities to overcome the economic crisis caused by the novel coronavirus disease (COVID-19), it is not desirable at all for the two institutions to be in conflict," adding, "The FSC should disclose the amendment to the Electronic Financial Transactions Act submitted to the National Assembly and withdraw the provisions that infringe on the central bank's exclusive duties."

Payment and settlement refer to the act of resolving creditor-debtor relationships arising from economic activities of economic agents by using payment instruments.

In many countries, central banks with note-issuing authority provide the final settlement assets necessary for transactions between financial institutions and operate the payment and settlement system. According to the Bank of Korea, countries where central banks currently manage and supervise payment and settlement systems include the United States, the European Union (EU), the United Kingdom, and Switzerland.

The FSC maintains a principled stance that it will consult with the Bank of Korea and others during the legislative discussion process going forward.

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