P2P Companies: 12 Closed This Month Alone... Fear of Insolvency Amid Mass Shutdown Risk

After the Enforcement of the On-to-Law, 41 P2P Companies Closed... Average Delinquency Rate Soars to 20.99%, Twice That of Last Year
Concerns Over Investor Losses as Loan Recovery May Be Difficult When Small P2P Firms Close

Since the implementation of the Online Investment Trading Act on August 27, the number of closures among P2P companies has been increasing.

[Asia Economy Reporter Gong Byung-sun] Since the enforcement of the Online Investment-Linked Finance Act (OnTu Act) last August, a total of 41 P2P (peer-to-peer) companies have closed down. In particular, 12 companies have shut down just this month. Experts predict that a wave of closures is inevitable as financial authorities plan to encourage unqualified companies to cease operations. Concerns are rising over the potential damage to financial consumers who invested in P2P companies, highlighting the urgent need for investor protection measures.

According to financial authorities and related industries on the 22nd, since the enforcement of the OnTu Act on August 27, a total of 41 companies have ceased operations as of this date. During the first comprehensive survey by financial authorities in September, 17% of the 237 companies had closed. P2P refers to services that mediate between investors and borrowers without going through traditional financial institutions. P2P companies operate by collecting investment funds from an unspecified number of people and lending them to those seeking loans, earning interest in return.

The pace of P2P company closures has accelerated this month, with 12 companies already shutting down. Experts forecast that more companies will close in the future. So-young Lee, a researcher in the Risk Management Division at the Korea Deposit Insurance Corporation, stated, "There are P2P companies ceasing operations due to management fraud, embezzlement, and poor loan screening," adding, "Authorities plan to encourage unqualified companies to either convert to loan businesses or close down, so the number of P2P companies exiting the market will increase." She also expressed concern that "if operating P2P companies close, the loan recovery process may be interrupted, potentially transferring losses to investors."

Additionally, the risk of loan defaults is increasing. According to Midrate, a P2P information provider, the average delinquency rate of P2P companies stands at 20.99% as of this date, nearly double the 11.4% recorded at the end of last year. The prolonged COVID-19 pandemic and government real estate regulations are also analyzed to have contributed to the rise in delinquency rates among P2P companies.

Consequently, there are calls for urgent measures to protect investors. Although the Financial Services Commission’s guidelines and the OnTu Act include measures such as entrusting law firms with loan claim recovery tasks when P2P companies cease operations, most P2P companies at risk of closure are small-scale and may not carry out loan recovery systematically. In fact, victims of Nekpun, which closed in July without returning 25.1 billion KRW in outstanding loans, continue to report that their investments have not been recovered.

A Financial Supervisory Service official said, "No specific measures have yet been established regarding the closure of small-scale P2P companies and investor protection," adding, "We recognize the potential issues and will work on developing concrete solutions going forward."

Meanwhile, a significant number of P2P companies have not completed the registration process required under the OnTu Act. Only three companies?8Percent, Rendit, and PeopleFund?have formally submitted registration applications to the Financial Services Commission.

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