P2P Industry Accelerates Launch of Legal P2P Association Despite Concerns Over Mass Closures (Comprehensive)

Despite Numerous Issues in the P2P Industry, Association Launch Accelerates
Delays Expected if Review Prolonged Due to Insufficient Data

Illustration by Youngwoo Lee 20wo@

[Asia Economy Reporter Song Seung-seop] The online investment-linked finance (P2P) industry, facing the threat of mass closures due to violations of the Loan Business Act, is set to launch a representative legal association as early as next month.

P2P Industry Accelerates Association Launch

According to the industry on the 29th, the Korea P2P Finance Association, which had served as the industry's association, has effectively entered the liquidation phase after disclosing management information last month. This is to form an association centered on P2P companies officially included in the system following the enforcement of the Online Investment-Linked Finance Act (OnTu Act).

The related tasks are being handled by the "Online Investment-Linked Finance Association Establishment Promotion Team," established in February last year. The promotion team, consisting of 27 companies, holds the view that once the Financial Supervisory Service's review results are announced as scheduled in February, there is no reason to wait until the registration application deadline stipulated by the OnTu Act at the end of August. A promotion team official said, "The law enforcement and registration procedures have been delayed more than expected," but added, "Although no schedule has been set, the official legal association can be launched as soon as companies pass the review."

Obstacles from Loan Business Act Violations and Stringent Registration Requirements

Currently, the P2P industry is struggling with platform fee issues. Six companies that exceeded the statutory maximum interest rate (24%) when combining platform fees and interest rates received 3 to 6 months of business suspension from the Financial Supervisory Service for violating the Loan Business Act. If the Financial Services Commission confirms this disposition, P2P companies under business suspension cannot apply for registration for three years regardless of the suspension period.

Only five companies have completed registration applications, making it uncertain how many companies will emerge. Besides these, eight companies are undergoing preliminary consultations with the Financial Supervisory Service, but none have yet applied for the formal registration process, which involves reviewing documents and major shareholder eligibility. Registration requires capital ranging from 500 million to 3 billion KRW, business plans, conflict of interest prevention measures, compliance officers, and at least two IT personnel.

Promotion Team: "Association Launch Possible Once First P2P Company Emerges"

Despite this, the promotion team is rushing the association launch to minimize the gap period without an association after the first P2P company appears. According to the OnTu Act, P2P companies must join the association, which also manages the deposit of reserves to fulfill P2P companies' liability for damages. Additionally, the association is responsible for ethics education for executives and employees and voluntary dispute mediation. The later the establishment, the more P2P companies will face various operational difficulties.

However, if delays occur during the financial authorities' review process due to insufficient documentation, launching the association in February seems unlikely. When a P2P company applies for registration, the financial authorities must announce results within two months, excluding the time taken for fact-checking major shareholders and applicants through the National Tax Service and credit information agencies, as well as the time requested for document supplementation.

If the number of P2P companies receiving confirmed business suspension orders for Loan Business Act violations or failing to meet conditions for registration increases, the promotion team will also have to proceed with refunding the contributions paid. Among the companies that applied for registration, one is reported to have had its review delayed due to a complaint filed for violating the Capital Markets Act. If fewer companies than expected lead the association establishment, it may take considerable time before the launch.

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