Preventing a Recurrence of the Merge Point Incident... Financial Services Commission Strengthens Supervision of Prepaid Businesses

The Amendment Is Scheduled to Take Effect from September Next Year

Amid concerns over significant losses for many affiliated individual business owners, excluding large retail corporations prepared for compensation due to the massive refund crisis of the payment platform Merge Point, the headquarters of 'Merge Point' in Yeongdeungpo-gu, Seoul, on the 18th. Photo by Hyunmin Kim kimhyun81@

To prevent a recurrence of the Merge Point incident that caused a refund chaos two years ago, financial authorities will strengthen supervision and management of prepaid electronic payment services going forward.

The Financial Services Commission announced on the 24th that the amended "Electronic Financial Transactions Act," which includes provisions to separately manage users' prepaid funds and expand the scope of supervision over the issuance and management of prepaid electronic payment instruments, has passed the National Assembly.

The amendment is scheduled to take effect from September next year. It aims to address regulatory blind spots in the prepaid industry exposed by the Merge Point incident and to safely protect users' prepaid funds by expanding the scope of prepaid service supervision, mandating separate management of prepaid funds, and establishing business conduct rules for prepaid service providers.

Between May 2020 and August 2021, Merge Point, which had been operating at a deficit, continued its business through a Ponzi-like scheme, eventually causing a refund chaos.

The amendment expands the scope of prepaid service supervision and strengthens the criteria for exemption from registration for prepaid service providers. It removes the industry classification criteria for prepaid electronic payment instruments and includes electronically converted paper gift certificates as prepaid electronic payment instruments. Registration exemption is granted only when the prepaid electronic payment instrument is used at a single merchant, thereby expanding the registration scope. To prevent unnecessary supervision of small businesses, registration is exempted if the outstanding balance and total issuance amount of the prepaid electronic payment instruments are below a certain threshold.

Protection measures for users' prepaid funds have been established. Prepaid service providers must separately manage at least 50% of the prepaid funds through trust, deposit, or payment guarantee insurance. The separately managed prepaid funds must be operated as safe assets, and cannot be offset, seized (including provisional seizure), transferred, or used as collateral. Users are granted priority repayment rights over the prepaid funds.

Thirdly, to protect prepaid service users, new business conduct rules that prepaid service providers must follow have been introduced. Providers must include in their terms and conditions that if they reduce merchants disadvantageously to users without just cause or change the usage conditions of prepaid electronic payment instruments, they will pay the full balance of the prepaid funds, and they must notify users accordingly.

The Financial Services Commission stated, "Through this legal amendment, we expect to reduce regulatory blind spots in the prepaid industry and safely protect users' prepaid funds. We will prepare for the law's implementation without delay by establishing subordinate regulations and, before the law takes effect, prepare detailed guidelines for the expanded scope of prepaid service supervision. We will also maintain continuous communication with the industry and promote multifaceted measures to establish a market discipline system."

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