Vice Chair Kim So-young Reviews Measures to Address Digital and Platform Potential Risks

The 5th Financial Risk Response TF Meeting Held

[Asia Economy Reporter Song Hwajeong] Kim Soyoung, Vice Chairman of the Financial Services Commission, emphasized, "To maximize the benefits of digitalization and ensure its sustainability, it is necessary to proactively predict and respond to potential risks related to financial stability and consumer protection."

Vice Chairman Kim made these remarks on the 13th during the 5th Financial Risk Response Task Force (TF) meeting held with related organizations.

In her opening remarks, Vice Chairman Kim stated, "Digitalization of finance is a new trend and is progressing rapidly, so it is necessary to carefully monitor the possibility of new risks that have not been experienced before and examine them from various perspectives." She added, "To this end, the Financial Services Commission, Financial Supervisory Service, Bank of Korea, Korea Deposit Insurance Corporation, and related research institutes must closely collaborate to analyze and respond to the potential risks of digital finance both microscopically and macroscopically."

At the meeting, related organizations shared and discussed risk factors and financial supervisory issues that may arise due to the advancement of digitalization and platformization of finance, as well as the strengthening of interconnections between the financial and non-financial sectors.

First, they reviewed potential risk factors arising from the growth of fintech and big tech and discussed response directions. Since fintech is expected to rapidly integrate new technological innovations into financial services and big tech is expected to grow through various paths such as utilizing online platforms' customer contact points and influence, there was consensus on the need to establish an appropriate supervisory system for related operational, business, and market risks. Operational and business risks identified included ▲ risks related to the use of IT technology (such as the appropriateness of algorithms recommending or linking financial products to customers), ▲ possibilities of incomplete sales, and ▲ risk transmission within big tech groups. Market risks included ▲ intensified competition in financial markets and ▲ concentration on specific products.

They also reviewed risk factors and regulatory systems related to the increase in third-party outsourcing and partnerships with non-financial companies by financial firms. Attention was paid to the recent trend of financial companies outsourcing some tasks such as loan and card recruitment and information processing to third parties, especially utilizing platform companies with wide customer contact points, and discussions were held on related legal revisions and strengthening direct and indirect supervision of outsourcing.

Discussions were also held on payment services, which have recently seen expanded use. Measures to strengthen the protection of user deposits related to prepaid payment instruments and risk factors arising from new platform-based payment services (such as simple payments) and corresponding response measures were also discussed.

The next 6th Financial Risk Response TF meeting is scheduled for November, where the current status, potential risks, and future management directions related to real estate will be discussed.

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