Fintech is one of the key areas actively promoted by the Korean government for innovation-led growth strategy. The emergence of innovative financial solutions in Korea has improved consumer experience while prompting further innovation and competition in the financial sector. In order to maintain this momentum and continue to build upon the achievements made so far, it is necessary to scale up and boost the competitiveness of our fintech industry for an era of digital transformation and data economy. Through regulatory reforms, global networking and investment, the government will work to foster a fintech ecosystem where fintech start-ups and financial institutions can continue to lead digital innovation in the financial sector.
Fintech landscape in Korea
Korea’s fintech industry has been growing fast. Korea is well positioned to become a fintech leader with its advanced ICT infrastructure, trend-savvy consumers and the government’s support for innovative solutions in the financial industry. Legislative and administrative efforts to introduce internet-only banks, financial regulatory sandbox, open banking and financial big data have made headways.
- Key Facts
Progress in Korea’s Fintech Policy
- Korea’s fintech policy has progressed in three stages:
- Adoption period(2013~2015)
Amid an accelerating convergence between finance and information technology across the globe, the government introduced a fintech policy roadmap in January 2015 to foster growth of the fintech industry.
- For further information:
- Formative period(2015~2017): The government lowered entry barriers to electronic finance business in 2015 and introduced a crowdfunding scheme in 2016. Korea’s first two internet-only banks became operational in 2017. Fintech start-ups began to emerge in diverse fields, such as crowdfunding, P2P lending and robo-advisory services.
- For further information:
- Press Release ‘Authoritative Regulatory Interpretation to Promote Fintech Investment’ (May 11, 2015)
- Press Release ‘Plan to Introduce Internet-only Banks in Korea’ (June 18, 2015)
- Press Release ‘Crowdfunding To be Introduced’ (July 23, 2015)
- Press Release ‘Fintech Open Platform Launched’ (August 30, 2016)
- Press Release ‘Korea’s First Internet-only Bank Open for Service’ (April 3, 2017)
- Press Release ‘Korea’s Second Internet-only Bank Open for Service (July 27, 2017)
- Expanding period(2017~2019)
The government made major breakthroughs in fintech legislations, including the Special Act on Internet-only Banks (2018), the Fintech Innovation Support Act (2018) and the Act on Peer-to-Peer (P2P) Lending (2019).
The regulatory sandbox was launched under the Fintech Innovation Support Act, and a total of 77 ‘innovative financial services’ were designated as of December 18, 2019 for testing their ideas with regulatory exemptions.
The government will further develop the fintech industry into new areas such as open banking and my data business, while continuing to work on regulatory reform through legislative efforts in the areas of credit information use and electronic finance business.
- For further information:
- Press Release ‘Regulatory Reform to Be Pursued for Online-only Banks’ (August 7, 2018)
- Press Release ‘Financial Innovation Support Act Passed in the National Assembly’ (Dec. 11, 2018)
- Press Release ‘FSC To Propose a Bill on P2P Lending’ (Feb.11, 2019)
- Press Release ‘Open Banking To Be Introduced’ (Feb. 25, 2019)
- Press Release ‘Financial Regulatory Sandbox Launched’ (April 1, 2019)
- Press Release ‘Regulatory Reforms to Promote Robo-Advisory Services’ (May 16, 2019)
- Press Release ‘FSC Announces Plans to Establish Financial Big Data Infrastructure’ (June 3, 2019)
- Press Release ‘FSC to Resume Procedures to Approve Additional Internet-only Bank’’ (July 17, 2019)
- Press Release ‘Guidelines on Financial Companies’ Investment in Fintech Business’ (Sept.4, 2019)
- Press Release ‘Open Banking Launched in Banking Sector’ (Oct. 30, 2019)
- Press Release ‘Government Establishes Legal Basis on P2P Lending Business (Oct. 31, 2019)
- Press Release ‘Progress on FSC’s Regulatory Sandbox’ (Nov.5, 2019)
- Press Release ‘Revision Bill on Credit Information Act Moves Ahead at National Assembly’ (Nov. 28, 2019)
Key Milestones in Fintech Policy
- Internet-only banks
- Korea’s two major internet-only banks – K Bank and Kakao Bank – launched in April and July 2017, respectively, have attracted millions of customers seeking more convenience in their banking experience. In October this year, three additional applications were submitted for digital bank licenses, and the FSC announced its decision to grant a preliminary license to Toss Bank on December 16. The Enforcement Decree of the Act on Special Cases Concerning Establishment and Operation of Internet-only Banks, which became effective on January 17, 2019, raised a ceiling of shareholdings by non-financial companies in an internet-only bank from 10 percent to 34 percent. Due to this change in shareholding rules, a non-financial company can become the largest shareholder of an internet-only bank, thus opening up the possibility for more innovative solutions in digital banking.
- Regulatory Sandbox
- Korea’s regulatory sandbox scheme was launched on April 1, 2019 following the passage of the Special Act on Financial Innovation Support by the National Assembly on December 7, 2018. It aims to support commercialization of innovative fintech solutions and ideas in order to bring more convenience for consumers and promote competition and growth in the fintech sectors. Fintech firms and financial service providers may apply for the designation of ‘innovative financial services’ by the FSC provided that their service is clearly distinct from other available services and has a potential to contribute to consumer convenience. The designation criteria include the innovativeness, consumer convenience, consumer protection and impact on financial stability. Once designated as an ‘innovative financial service,’ regulatory exemptions apply for a 2-year period which is renewable once thereafter. As of April 1, 2020, the one-year anniversary of the launching of the regulatory sandbox program, the FSC has designated a total of 102 ‘innovative financial services’ to the sandbox program.
- Open banking
- Korea’s open banking system was fully launched on December 18, 2019. Open banking has many benefits for different players. Through open API initiatives, fintech firms can access banks’ payment network and pay lower transaction fees. The banking sector can take advantage of the increased competition for innovation. From a consumer perspective, it allows bank users to pick a mobile banking application of their own choosing to manage all of their bank accounts in a single platform without having to use separate applications for different banks. When open banking service was pilot-launched on October 30, about 510,000 people and 940,000 accounts were registered on the first day. By January 8, 2020, approximately 11.97 million individuals and 22.22 million accounts were registered to use open banking services. As of February 5, 2020, open banking services are available from a total of 50 institutions (17 banks and 33 fintech firms) and more fintech firms are expected to join in the near future after the completion of security tests.
- The revision bill to the Credit Information Use and Protection Act passed the National Assembly on January 9, 2020. It provides a legal basis for the commercialization of MyData businesses through which individuals can access their integrated personal information and receive financial advising and asset management services. Having access to different types of personal financial data dispersed throughout various financial sectors and companies, MyData businesses can analyze financial status and spending patterns of individuals to provide financial advising services and offer a comparison of financial products. At the same time, the revision bill will ensure the safety and security of personal data through application of a standard API for the transfer of credit information and strict personal authentication procedures. It is expected that the revision bill to the Credit Information Act will provide a foundation for fostering new growth engines in an era of data economy. It will also place Korea’s data regulations more closely on a par with global standards, such as the European Union’s General Data Protection Regulation. The amendments to the Credit Information Use and Protection Act will take effect on August 5, 2020.
- Korea’s legal framework on electronic financial transactions requires updating in line with rapid changes and developments in the fintech industry. In this regard, the FSC will push for a revision of the Electronic Financial Transactions Act in order to introduce MyPayment businesses to Korea’s financial markets. Under the current regulatory system, financial firms are required to hold customers’ funds for payment to be made. However, a MyPayment business does not directly manage user funds while allowing users to make electronic payments simply by giving a ‘payment order’ to the fund-holding institution. MyPayment can provide a comprehensive one-stop asset management service especially when combined with MyData service.
- Legislations on Peer-to-Peer Lending
- P2P lending has seen a dramatic increase in recent years. As total investment in P2P lending rose rapidly from KRW37.3 billion (end of 2015) to KRW2.34 trillion (end of 2017) to KRW6.2 trillion (end of June 2019), the National Assembly passed the Act on Online Investment-linked Financing on October 31, 2019. This legislation established the regulations on P2P lending firms’ entry requirements, guidelines for their business operation and rules on investor protection. The P2P lending firms must be registered with the FSC and meet capital requirements (between KRW500 million and KRW3 billion) at registration. For investors, different lending caps will be applied for retail investors (up to KRW50 million per year) and accredited investors (up to KRW100 million per year). The Act on Online Investment-linked Financing is scheduled to take effect on August 27, 2020.
- AML Requirements on Crypto-assets
- The revision to the Act on Reporting and Using Specified Financial Transaction Information was passed at the National Assembly on March 5 and the amendments were approved at a cabinet meeting on March 17, 2020. The revision imposes anti-money laundering (AML) requirements on crypto-asset business operators and stipulates requirements with which financial institutions must comply in their transactions with crypto-asset business operators. The Korea Financial Intelligence Unit (KoFIU), which oversees the AML/CFT framework in Korea, has issued the AML Guidelines for Cryptocurrencies, requiring real-name verification, customer due diligence and suspicious transaction reports from financial institutions.
Going Forward: Fintech Scale-up Strategy
In order to further develop Korea’s fintech industry and enrich its ecosystem, the government unveiled its fintech scale-up strategy on December 4, 2019. Building upon the progress made so far, the strategy includes 24 key tasks in 8 different policy areas.
- Improving the Current Regulatory Sandbox System
- The FSC plans to designate more than 100 ‘innovative financial services’ by the end of March 2020 and ensure that innovative ideas and technologies are properly protected through patents and intellectual property rights. Fintech firms will also be provided with continuous support (e.g. costs on testing, security inspection, office space, etc.) for the entire cycle from their designation of ‘innovative financial services’ to commercialization. Additionally, a supervisory framework tailored to the promotion of fintech firms will be set up.
- Performing Regulatory Reforms to Facilitate Fintech Development
- The government will promote a flexible and dynamic regulatory environment through which testing of ‘innovative financial services’ can lead to commercialization and ultimately to an improvement in regulatory reforms. While working on regulatory analysis and reforms to facilitate introduction and adoption of successful foreign-based fintech services in the Korean market, the government will regularly visit innovative fintech firms in the field to monitor ongoing changes and developments in the fintech industry and to improve their business environment.
- Lowering Entry Barriers to Financial Industry
- The new measure will extend the regulatory exemption period if no modification has taken place with regulations prior to the expiration of the testing period. The government will also grant provisional licenses to fintech firms and introduce ‘small licenses’ to facilitate development of new financial services and their entry to the market.
- and introduce a provisional licensing system (e.g. ‘small license’) through which fintech firms may continue to provide relevant services, while subdividing licensing units to facilitate the development of new financial services and their entry to the market.
- Establishing Regulatory Foundations for Digital Era
- The government plans to promote electronic payment services, such as ‘MyPayment,’ and provide a legal framework allowing the use of newly emerging authentication methods, such as biometrics and decentralized ID (DID), while strengthening the preparedness for cyber security risks in financial sectors.
- Developing New Growth Engines for Financial Innovation
- The government will continue to implement innovative initiatives in e-payment infrastructure with the introduction and expansion of open banking system. With the revision to the Credit Information Use and Protection Act, the government will modify relevant laws, infrastructure and regulations to promote the application of big data in financial sectors and the development of big data infrastructure, such as the financial big data open system ‘CreDB,’ data exchange platforms and institutions specializing in big data (e.g. Korea Credit Information Services and Financial Security Institute). The new measure is also aimed at facilitating the adoption of new fintech-based innovative solutions in the areas of P2P lending and artificial intelligence.
- Promoting Investment in Fintech & Fostering a Private Sector-driven Venture Capital Ecosystem
- There are various funding opportunities for fintech firms at different stages of their business cycle. The new measure is aimed at encouraging more investment from financial institutions, prompting the acceleration of fintech innovation and internalization of fintech firms by financial institutions. It also expands the scope of fintech business in which financial companies are allowed to invest while encouraging more investment in fintech labs and start-ups by financial companies. Banks and financial institutions will create and operate a Fintech Innovation Fund (KRW300 billion over 4 years), and policy banks will provide government-backed investments, loans and guarantees (KRW3.35 trillion over 3 years). The government also plans to modify KOSDAQ listing requirements to facilitate fintech IPOs.
- Assisting Fintech Firms with Overseas Business Opportunities
- Through active cooperation between the government, financial institutions and fintech firms, the government plans to assist in launching more than 5 fintech labs in ASEAN countries by 2020, while strengthening inter-governmental cooperation with other countries through a referral mechanism to support fintech firms’ overseas expansion in each other’s countries. The government also plans to operate a ‘global regulatory sandbox’ scheme which will expedite the process of evaluation and testing for domestic fintech firms planning to expand overseas and foreign-based fintech firms wishing to enter the Korean market.
- Expanding Public Sector Support for Fintech Firms
- The government will increase public sector support for fintech firms by boosting fiscal resources to support new programs, such as operation of educational programs designed to foster fintech professionals as well as support for developing new technologies utilizing financial cloud services. The role of the Korea Fintech Center will be enhanced in line with growing fintech projects and the government plans to introduce fintech-friendly tax incentives.
- For further information:
Funding for Fintech Start-ups
Fintech start-ups have various financing options including angel investment or crowdfunding. The government launched funding schemes available at each stage of business life-cycle to attract venture capital from the private sector. The Korea Growth Investment Corporation (“K-Growth”) was established in 2016, specializing in venture capital and private equity investment as an independent fund-of-funds management company. The Growth Ladder Fund in the amount of USD 1.5 billion was set up to address funding problems of start-ups and SMEs. Similarly, the Innovative Growth Fund worth USD 225 million was launched to provide venture capital to innovative companies during the growth and later stages of business. The KOSDAQ Scale-up Fund in the amount of USD 83 million aims to support the growth of KOSDAQ listed firms while encouraging innovative companies to enter the KOSDAQ market.
To support fintech firms to scale up, the FSC plans to establish a Fintech Innovation Fund worth KRW300 billion.
Regulations & Related Matters
- Act on Online Investment-linked Financing
- Act on the Promotion of Information and Communications Network Utilization and Information Protection, etc.
- (Korea Communications Commission)
- Copyright Act (Ministry of Culture, Sports and Tourism)
- Credit Information Use and Protection Act
- Design Protection Act (Korean Intellectual Property Office)
- Electronic Financial Transactions Act
- Financial Investment Services and Capital Markets Act
- Foreign Exchange Transactions Act (Ministry of Economy and Finance)
- New legislation on Financial Consumer Protection
- Patent Act (Korean Intellectual Property Office)
- Personal Information Protection Act (Ministry of the Interior and Safety)
- Revision Bill on Reporting and Using Specified Financial Transaction Information on Crypro-assets
- Special Act on Financial Innovation Support
- Unfair Competition Prevention and Trade Secret Protection Act (Korean Intellectual Property Office)
- Utility Model Act (Korean Intellectual Property Office)
Last updated: Apr. 6, 2020