Uncertain Ontub Law No.1 Company... Investor Lawsuit Battle Feared (Comprehensive)

Disciplinary Delays Leave OnTuBeop No.1 in the Dark
P2P Industry Sees Rising Closure Reports and Soaring Delinquency Rates
Growing Anxiety Among Some Investors: "We Will File a Class Action Lawsuit"

[Asia Economy Reporter Song Seung-seop] Despite about eight months having passed since the Online Investment-Linked Finance Act (OnTu Act) came into effect, concerns are growing as there has been no news of the selection of the first P2P (peer-to-peer) company. This is due to the overall increase in delinquency rates across the industry and growing anxiety among investors. Signs of discord between the Financial Services Commission and the Financial Supervisory Service over work processing have also been detected.

According to financial authorities and the industry on the 26th, six P2P companies are currently awaiting the Financial Supervisory Service's registration review results under the OnTu Act. They completed preliminary reviews through consultations with the Financial Supervisory Service before submitting documents. The first registration application was submitted on September 14 last year.

The OnTu Act stipulates that companies wishing to operate P2P businesses must have a minimum capital of 500 million KRW and appoint a compliance officer. They must also have a business plan and conflict of interest prevention measures. Companies that fail to complete registration by August 26 must operate as loan businesses rather than P2P businesses.

The delay in decisions is analyzed to stem from issues related to the review of P2P companies that violated the statutory maximum interest rate regulations. Currently, the Financial Services Commission is considering disciplinary measures for some P2P companies separately from the registration review. These companies exceeded the statutory maximum interest rate of 24% when combining platform fees and loan interest. The Financial Supervisory Service has imposed business suspension penalties ranging from 3 to 6 months.

The Financial Services Commission requested a legal interpretation from the Ministry of Government Legislation on whether platform fees received by P2P companies can be considered interest before finalizing the Financial Supervisory Service's sanctions. Although this procedure usually takes 2 to 3 months, they judged it necessary to clarify the matter thoroughly.

However, on the 9th, the Ministry of Government Legislation rejected the request, leaving the Financial Services Commission to make its own decision. A Ministry official did not specify the exact reason for rejection but explained, "We do not handle disputes over factual recognition rather than statutory interpretation." This suggests the delay was due to requesting a matter outside the Ministry's jurisdiction.

The Financial Services Commission stated, "We also made some judgments internally before requesting the Ministry's interpretation," and added, "Regardless of disciplinary measures, the Financial Supervisory Service may announce the first registered company first." However, regarding the sanction decision, they forecast, "It seems difficult to finalize within this month."

Ministry of Government Legislation Rejects Legal Interpretation Request... Industry Shrinks and Investor Anxiety Grows Due to Delays

On the other hand, the Financial Supervisory Service insists that the Financial Services Commission's sanction results should come first. A Financial Supervisory Service official explained, "The Financial Services Commission is currently judging the sanction issues," and "We are preparing so that registered companies can be selected as soon as the results come out." They also lamented, "Employees feel considerable pressure about the registration deadline, and with only a few months left, the process needs to proceed quickly."

Automated diversified investment is also one of the contentious issues. Automated diversified investment service refers to a function where a P2P company automatically diversifies deposits according to the investor's preferences and preset algorithms. Current law defines 'OnTu business' as executing loans to borrowers designated by investors. Financial authorities hold the view that automatically investing funds does not align with the purpose of the OnTu Act.

While the decision on the first OnTu Act company is delayed, the P2P industry continues to shrink. According to the P2P financial company disclosure site Midrate, the number of target companies was 104 as of this day, decreasing every month. The number of target companies was 119 at the beginning of this year, dropped to 115 a month later, and decreased to 108 last month. Compared to 139 companies a year ago, it appears that 35 companies have reported closure.

The average delinquency rate has also steadily increased. The average delinquency rate was 15.77% in April last year and soared to 22.65% as of this day. About 20 companies have delinquency rates exceeding 20%, with 4 of them reaching 100%.

Along with the worsening management of P2P companies, some investors are reportedly initiating class-action lawsuits to recover investments from multiple P2P companies. One investor said, "We are considering compensation and reimbursement issues for P2P investors," and added, "We are looking for a lawyer to handle a class-action lawsuit for small investors who participated in accounts receivable funding through P2P."

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