"Measures Needed to Strengthen Safety of User Deposits in Big Tech"

Korea Institute of Finance: "Big Tech Encompasses E-commerce and Finance..."
"Even When Engaging in Banking Activities, They Pose Greater Risks Than Banks"

[Asia Economy Reporter Park Sun-mi] It has been advised that it is desirable to consider the introduction of both micro- and macro-level regulations on big tech's participation in finance in South Korea.

On the 1st, Kim Ja-bong, Senior Research Fellow at the Korea Institute of Finance, stated in a report, "Regulators face the dual challenge of enhancing the efficiency of financial services through big tech's participation while protecting financial stability," adding, "First, from the perspective of microprudential regulation, the safety of user deposits in accounts issued by comprehensive payment service providers must be strengthened and maintained."

According to the amendment to the Electronic Financial Transactions Act, user deposits are fully deposited externally for fund transfer services, but only 50% is deposited with external institutions for payment services where postpaid payments are allowed. Additionally, user deposits are not covered by deposit insurance. He said, "In the event of a big tech bankruptcy, it is necessary to improve the payment procedures so that user deposits can be paid to users more safely," and added, "Considering these issues, measures should be devised to ensure the safety of user deposits and to stabilize customer fund management."

He also emphasized the need to prevent regulatory arbitrage regarding comprehensive payment service providers. He explained, "At the very least, rewards based on payment performance or postpaid payments should be prohibited, or measures should be prepared to eliminate regulatory arbitrage through the introduction of regulations based on the principles of same function, same regulation and same risk, same regulation," and added, "It is necessary to further specify the scope of various account-based convergence services, including concurrent and ancillary businesses of comprehensive payment service providers."

For macroprudential regulation, there is a need to review whether the participation of user deposits in the payment system causes issues that undermine payment stability, especially given concerns that accounts issued by comprehensive payment service providers are not 100% externally deposited when participating in interbank small-value payment networks, and that postpaid payments may exceed payment capacity.

Researcher Kim added, "Participation in interbank payment networks without stable source funds for payments can affect the stability of the payment system, so appropriate review and countermeasures are necessary."

Kim argued that it is necessary to rigorously examine the impact of big tech's financial participation on financial stability and to appropriately determine the scope and level of big tech's financial participation based on this. He emphasized, "Since big tech encompasses e-commerce and finance, even when engaging in banking-like financial activities, it has characteristics that pose greater risks than banks," and stressed, "It is desirable to combine institution-centered regulation with same activity, same regulation."

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