Digital Finance Task 'Network Separation'... Related Laws Are 'Napping' in the National Assembly (Comprehensive)

Authorities Acknowledge Need for Improvement but
Delays in Jeongeum Act Discussions Cause Difficulties

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] As remote work and non-face-to-face tasks have expanded due to the impact of COVID-19, the financial sector's ‘network separation regulation’ is gaining attention. Especially following the fintech (finance + technology) industry, which is most sensitive to this issue, the National Assembly Legislative Research Office has also advised that network separation regulations should be improved to revitalize digital finance. Although financial authorities are showing a progressive attitude, discussions on the amendment of the related Electronic Financial Transactions Act (EFTA) are repeatedly stalled, delaying the legal revisions that are key to regulatory easing.

According to political circles on the 7th, Suhwan Lee, a legislative researcher at the National Assembly Legislative Research Office, recently proposed actively utilizing the designation of innovative financial services to improve network separation regulations in the financial sector in a report titled ‘Legislative and Policy Tasks Related to Digital Financial Innovation.’ Along with this, he pointed out the need to establish a ‘Financial Security Expert Committee’ within the Financial Services Commission to guarantee independent decision-making.

Network separation is a regulation that requires the separation of internal and external computer networks within financial companies, established to enhance security. As hacking targeting the financial sector surged, financial authorities mandated network separation. However, with the spread of COVID-19, financial authorities temporarily relaxed network separation policies for financial companies. As remote work increased, the need to improve network separation regulations arose.

Nevertheless, concerns surrounding network separation regulations are still ongoing. In particular, the fintech industry is strongly opposed. The fintech sector consistently points out that network separation significantly slows down service development speed and increases inefficiency.

The fintech industry is requesting that network separation exceptions be allowed at least during the development and testing phases. They argue that inefficiencies in the development environment must be overcome by increasing personnel, but small and medium-sized fintech companies find it difficult to increase staff indiscriminately. According to the Fintech Industry Association, due to network separation regulations that separate internal and external computer networks, a startup with about 25 employees incurs an additional cost of 500 million KRW, and work productivity drops to below 50%. Big tech companies (large information and communication companies) face similar difficulties. Toss and KakaoPay were fined 37.2 million KRW and 69.6 million KRW respectively in March and May of this year for violating network separation regulations.

Financial authorities also acknowledge the need for improvement. They particularly emphasize the necessity to reasonably apply network separation regulations to development and non-financial tasks without compromising security. Hyungjoo Lee, head of the Financial Innovation Planning Division at the Financial Services Commission, stated at the opening ceremony of ‘Korea Fintech Week 2021’ last month during a fintech policy keynote speech, "We will gradually rationalize network separation regulations to create a business environment suitable for the untact era."

However, as the amendment to the EFTA is stalled in the National Assembly, the easing of network separation regulations is also failing to gain momentum. Financial authorities plan to organize a working group with financial companies and reflect the contents through subordinate regulations once the EFTA is amended. But as discussions on the EFTA are delayed, the regulatory easing scheduled for the first half of this year is also being postponed.

A representative from the fintech industry said, "If network separation is implemented, the physical burden such as development time and costs can be greatly reduced," adding, "MyData (personal credit information verification business) operators are also subject to network separation obligations, so we are watching the situation ahead of the full-scale business launch in August."

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