Lee Ju-yeol, Financial Services Commission Directly Rebuts "Fintech Regulation, Excessive and Unnecessary Intervention" (Comprehensive)

Lee Ju-yeol, Governor of the Bank of Korea (left), and Eun Sung-soo, Chairman of the Financial Services Commission [Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] As the Bank of Korea and the Financial Services Commission (FSC) clash over the authority to manage and supervise payment settlements of companies like Naver and KakaoPay, Lee Ju-yeol, Governor of the Bank of Korea, publicly rebutted the FSC point by point on the 26th.

The FSC is recently pushing for an amendment to the Electronic Financial Transactions Act that establishes a new "electronic payment transaction clearing business" and mandates that even internal transactions of big tech and fintech companies be processed through the Korea Financial Telecommunications and Clearings Institute's (KFTC) payment settlement system.

Electronic payment transaction clearing refers to offsetting claims and debts during the fund transfer process to simplify transactions. When multiple transfer transactions occur between different banks, Bank A and Bank B calculate the net amount owed to each other to finalize the settlement amount. The KFTC is a representative institution that performs such electronic payment transaction clearing. The FSC's position is that, as fintech transaction volumes grow, transactions occurring when charging up OO Pay and purchasing goods within the same company's shopping mall should also be managed and supervised through the KFTC. Therefore, the amendment includes supervisory authority of the FSC over the KFTC. The Bank of Korea interprets this as the FSC intending to manage the KFTC through the amendment. The Bank of Korea already operates the Bank of Korea Financial Network and is responsible for the final settlement operations of the KFTC payment settlement system, as well as monitoring (evaluation, improvement recommendations, etc.) the KFTC payment settlement system.

At a press conference immediately after the Monetary Policy Committee meeting that day, Governor Lee stated regarding the FSC's push for the amendment to the Electronic Financial Transactions Act, "Operating and managing payment settlements stably is an inherent authority of the central bank, and no country is an exception," adding, "If payment defaults occur, the system could collapse, causing economic turmoil. To prevent this, the central bank holds the final decision-making authority to reduce risk."

He continued, "Looking at the FSC's amendment, it anticipates an expansion of fintech payment activities and aims to reduce risk by mandating that fintech internal transactions be processed through the KFTC system," adding, "The KFTC is an institution that clears fund transfers between financial institutions, but the amendment requires even unnecessary internal transactions to be processed through the KFTC system and grants the FSC comprehensive supervisory authority over the KFTC."

Governor Lee emphasized, "If fintech companies' internal transactions are also conducted on the KFTC system, stability will inevitably decline," and said that the FSC's intention to have broad operational authority is excessive regulation.

The KFTC was separated from the Bank of Korea in the past and has been supervised by the Bank of Korea. Governor Lee said, "The Bank of Korea has managed the KFTC stably, but the FSC's intention to supervise the KFTC by overseeing fintech internal transactions is excessive and unnecessary interference with the central bank." He also noted, "The Bank of Korea has conveyed and expressed these opinions multiple times, but they were not reflected," adding, "Even in other countries where fintech is active, such cases do not exist." He mentioned that although China exists, it is not a situation to follow China.

Furthermore, Governor Lee said, "Our economy is in a very difficult situation, and I feel quite regretful and sorry that conflicts between the two institutions are being exposed," adding, "The FSC and the Bank of Korea have cooperated closely since COVID-19, and cooperation will be needed for a considerable period going forward, so it is unfortunate that such issues have arisen."

Meanwhile, the Bank of Korea states that if the amendment to the Electronic Financial Transactions Act is pushed forward, the authority of the Bank of Korea's Monetary Policy Committee will also be nullified.

A senior Bank of Korea official emphasized, "The Bank of Korea's Monetary Policy Committee has the authority to approve whether payment settlement system operators use the Bank of Korea Financial Network," adding, "If the FSC gains authority to license and revoke clearing institutions, issue corrective orders, and discipline institutions and employees, it will ultimately nullify the Monetary Policy Committee's authority." Payment settlement operations focus on managing settlement risk and providing liquidity support, which are considered inherent and fundamental tasks of a central bank with issuing authority. In most countries, the central bank operates and manages the payment settlement system.

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