Are Financial Companies Participating in OntoUp Investors or Not... Industry Expresses "Concerns Over Growth Hindrance"

Financial Companies Must Manage Risks When Judging Loans
Borrower Information Essential for Risk Management
On-tu-eop Act Prohibits Sharing Related Information
Financial Company Participation Likely to Decrease Due to Various Regulations

[Asia Economy Reporter Song Seung-seop] Whether financial companies participating as institutional investors in online investment-linked finance businesses (On-tu-eop) should be regarded as ‘investors’ has emerged as a contentious issue in the industry. If they are classified as ‘lenders,’ controversies arise over whether financial companies must directly manage risks and whether they should be included in total loan volume regulations. While financial authorities are deliberating on related matters, On-tu-eop companies are concerned that low participation from institutional investors could hinder industry growth.

According to the industry on the 20th, financial authorities are currently adjusting details related to private financial companies’ investments in On-tu-eop. They are reviewing interpretations of legal provisions, the nature of investments, and the scope of regulatory application.

The key issue is whether financial companies’ investments in On-tu-eop constitute loans. The On-tu-eop business structure connects borrowers and investors directly. If a financial company becomes an On-tu-eop investor, it merely goes through a platform, but effectively results in lending to financial consumers.

Currently, the On-tu-eop Act regards investments by financial companies in On-tu-eop firms as credit. Article 35 of the On-tu-eop Act states that unless otherwise specified by laws governing each financial sector, joint investments with credit financial institutions are considered ‘loans or credit extensions.’

The problem is that if these are viewed as loans, financial companies must comply with stringent legal regulations. Under current law, financial institutions must adhere to ‘individual borrower credit limits’ and ‘Debt Service Ratio (DSR) regulations’ when lending money. If loan regulations apply, financial companies are likely to avoid investing in On-tu-eop.

Divergent Law Firm Opinions... Will Financial Authorities’ Recommendations Apply?

Legal conflicts also arise. The moment a financial company executes credit, it has an obligation to manage risks. To manage risks, it must know the information of the borrower, but the On-tu-eop Act prohibits providing borrower information. This is why savings banks and mutual finance sectors, which had shown interest in On-tu-eop investments, hesitate to participate as institutional investors.

How to apply guidance or recommendations from financial authorities, rather than laws, is also an issue. Currently, each financial sector regulates total loan volume according to authorities’ guidelines. If funds invested in On-tu-eop are interpreted as loans, they are likely to be included in the total volume.

The On-tu-eop industry is wary of financial institutions’ investment activities being interpreted as loans. A representative from an On-tu-eop company said, “Most countries regard financial institutions’ participation in On-tu-eop as investments,” adding, “If the participation of financial companies, which was considered a key to growth, becomes difficult, financial innovation development will also slow down.”

Accordingly, the Financial Supervisory Service (FSS) consulted multiple law firms for legal advice on the matter, but reportedly received differing opinions. The issue has not been decided at the FSS level and has been reported to the higher authority, the Financial Services Commission.

An FSS official explained, “If it were a matter of legal interpretation, the authorities might resolve it, but now there is also a conflict between laws,” adding, “There are voices that it should be regarded as investment in line with the purpose of On-tu-eop, but when the law is ambiguous or not, there is clearly a problematic aspect, so we are waiting for an internal decision.”

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