[Big Tech on the Test Bench] Stricter Regulations from Next Year... Targeting the 'Tilted Playing Field'

Big Tech Targeted Amid Tilted Playing Field Controversy
Principle of Equal Function, Equal Regulation... No More 'Favoritism'
Anxious Big Tech Industry Faces Test of Management Capability

"The entry of big tech (large information technology companies) into the financial industry must occur under the principle of 'same function, same regulation'." (Ko Seung-beom, Chairman of the Financial Services Commission, opening remarks at the Big Tech meeting on December 15)

Regulations by financial authorities on big tech companies such as Naver and Kakao are expected to become more active starting this year and continuing into next year. This is because the financial authorities' stance on big tech has solidified from a favoritism mode after the replacement of two heads to a 'strict regulation mode.' The new stance of the financial authorities is that fair competition must take place on a broader and higher playing field in the digital transformation of finance.

◆ Financial authorities target the giant big tech = According to the financial sector on the 28th, the financial authorities have decided to revert the various conveniences previously granted to big tech under 'regulatory easing' back to the starting point. This is interpreted as meaning that by applying 'same function, same regulation,' there will no longer be controversies over favoritism toward big tech.

Big tech has so far been subject to much lower levels of regulation than traditional financial companies such as banks under the name of financial innovation. Riding on these privileges, big tech has rapidly grown in recent years and changed the landscape of the financial market. Currently, Naver's market capitalization is about 62 trillion won, which is comparable to the combined market capitalization of the four major financial holding companies. Recently listed Kakao Bank and Kakao Pay have also far surpassed the value of financial holding companies.

However, this rapid growth of big tech has caused many controversies. A representative example is 'MyData,' which is called the future growth engine of financial companies. While financial companies provided most information related to personal credit information in financial transactions to big tech as MyData operators, big tech refused to provide core e-commerce information such as 'order details,' claiming it was not personal credit information.

The 'debt refinancing platform,' which the financial authorities promoted as a core project this year, also failed due to a structure that was too favorable to big tech. Existing financial companies were reluctant to participate, citing that the platform's leadership was held by big tech. This is because it could easily degrade into a position that only provides product procurement functions while offering high fees. A banking official said, "If it had been introduced, it would have been a situation where the bear (bank) does the tricks and the king (big tech) takes the money."

Accordingly, after the replacement of the head, the financial authorities have significantly strengthened regulations on big tech. Chairman Ko Seung-beom's firm stance is that the 'tilted playing field' will no longer be tolerated.

Shortly after Chairman Ko's inauguration, the financial authorities defined big tech's customized financial product recommendations as a violation of the 'Financial Consumer Protection Act.' As a result, some big tech companies such as Kakao Pay had to suspend their services. In addition, through amendments to the Electronic Financial Transactions Act, regulations on business practices such as data monopolization and biased service provision by big tech will be strengthened. The amendment bill submitted to the National Assembly prohibits abuse of superior status such as shifting losses of financial platforms, forcing economic benefits, and interfering with management activities.

Experts positively evaluate the financial authorities' 'same function, same regulation' principle as it can block controversies over privileges that have arisen so far. Professor Lee Min-hwan of Inha University's Department of Global Finance said, "The problem started because big tech's business was no different from financial business but was not regulated. The 'same function, same regulation' principle will be an important principle to minimize consumer protection issues and conflicts between companies."

◆ Big tech on edge... test of management capability = Financial authorities' regulations on big tech will be further strengthened next year. The Financial Services Commission recently announced plans to introduce a supervisory system targeting big tech groups and to check potential risks arising from big tech as part of next year's work plan.

It is likely that the 'Financial Conglomerate Supervision Act,' which applies to financial groups rather than holding companies such as Samsung and Hanwha, will be introduced to big tech. If big tech companies become subject to the Financial Conglomerate Supervision Act, aggressive business expansion based on platforms will inevitably be restrained. Capital burdens will increase, and internal transactions between affiliates will be restricted. This is interpreted as an intention to correct the 'tilted playing field' existing between big tech and traditional financial companies.

Lee Soon-ho, a research fellow at the Korea Institute of Finance, argued, "To block financial system risks from big tech, it is necessary to review whether to designate them as complex financial groups under the 'Financial Group Supervision Act' and to prepare preemptive management measures to block risk transmission between financial and non-financial sectors."

The Financial Supervisory Service plans to strengthen consumer protection measures for prepaid recharge funds of big tech, which are not protected by deposit insurance. This is intended to prevent cases similar to the recent so-called 'Merge Point incident.'

Meanwhile, the big tech industry is anxious about the financial authorities' 'strict regulation mode.' In particular, there are strong concerns about the fact that regulations are being strengthened despite calls for financial innovation. A big tech official said, "The principle of 'same function, same regulation' is emphasized, but the fact that the business environments of existing financial companies and big tech are completely different is not being considered. Excessive regulation is worrisome as it could infringe on consumer benefits."

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