Kakao Pay Stalled by Internal Issues... Korean Financial Firms Face New Business Barriers from Overseas Shareholders (Comprehensive)

China's Major Regulations on Digital Economy Including Fintech
Concerns Over Hindrance to Expansion of Domestic Companies with Local Investments
"Major Shareholder Eligibility Review Should Be Handled Flexibly"

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] Concerns are rising that China's sweeping regulations on its rapidly growing digital economy could adversely affect domestic financial companies. This is because the strong regulatory measures in China have increased the likelihood of 'major shareholder eligibility' issues arising for financial firms that have partnerships with or equity investments from Chinese companies. Industry insiders point out that "it looks like overseas authorities are granting domestic licenses," emphasizing the urgent need for regulatory reform.

According to the financial sector on the 16th, Chinese authorities recently announced in the legislative work plan of the National People's Congress (NPC) that they will amend the Anti-Monopoly Law for the first time in 13 years. The focus is on strengthening regulations on the rapidly growing digital economy. Last month, the State Administration for Market Regulation (SAMR), which plays a role similar to Korea's Fair Trade Commission, began enforcing regulations on internet companies. SAMR issued the "Guidelines of the State Council Anti-Monopoly Commission on Internet Platform Enterprises," signaling upcoming regulations on various fintech (finance + technology) companies.

Due to these regulatory risks in China, domestic financial firms that have received investments from local platform companies face increasing challenges in expanding their businesses. A representative case is Kakao Pay. In December last year, Kakao Pay applied for a preliminary permit for MyData but was put on hold due to incomplete submission of documents concerning whether its second-largest shareholder, Alipay Singapore Holdings, was subject to Chinese government sanctions. The financial authorities' major shareholder eligibility review targets shareholders holding more than 10% equity. Kakao Pay's shareholding structure is 56.1% by Kakao and 43.9% by Alipay, making it difficult to adjust the equity structure for the main permit review.

The Final Decision-Maker for Domestic Financial Industry Policy May Lie Overseas

Industry insiders criticized that "the final decision-maker for the MyData business has become the Chinese authorities." Kakao Pay is at risk of rejection due to conflicts between the Chinese government and local companies, regardless of its fintech capabilities or ethics. In fact, Kakao Pay has not even received a preliminary permit two months after the financial authorities' review.

Moreover, it is also problematic that if the equity of overseas capital, not only from China but other countries, becomes an issue, the domestic industry could be impacted. Especially for financial firms with relatively high foreign shareholder investment ratios, the eligibility review of overseas major shareholders could hinder entry into new domestic businesses. This may also lead to reluctance in attracting foreign investors.

There are concerns that Chinese authorities might exploit regulations to suppress the growth of Korean companies as they strengthen regulatory measures.

Experts point out that domestic authorities need to respond more flexibly for the development of the domestic financial industry. Professor Jiyong Seo of the Department of Business Administration at Sangmyung University emphasized, "Given the nature of MyData, it is undesirable for the business to be derailed due to major shareholder eligibility issues," adding, "Instead, focus should be on security policies to protect consumers."

There are also calls for financial authorities to take exceptional measures since service interruptions could cause consumer inconvenience. Professor Seongyeop Lee of Korea University advised, "Exceptional measures are necessary to revitalize the MyData business," suggesting, "Various methods such as financial regulatory sandboxes, Board of Audit and Inspection consulting, and priority permits should be considered."

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