The government drew up the Enforcement Decree of the Act on Online-linked Financing as the new legislation on peer-to-peer (P2P) lending is scheduled to take effect on August 27, 2020. The enforcement decree will be introduced at a cabinet meeting after promulgation and screening of regulations.
KEY PROVISIONS
I. ENTRY REQUIREMENTS
P2P lending businesses must be registered with the Financial Services Commission and demonstrate that they satisfy the below capital requirements.
After registration, P2P lending firms must maintain a capital level of at least 70 percent of the capital requirements at registration. In the case that a firm’s P2P loan balance changes from one of the three established categories to another, the firm must re-register demonstrating the capital requirement for the new category.
II. RULES ON SALES PRACTICES
► P2P lending businesses shall charge fees only at rates announced on their online platforms.
► Principal investing is permitted only when more than 80 percent of investments for P2P loan balance have been raised. The act of notifying principal investment to other investors or borrowers, and that of redeeming principal and interest payments before others shall be prohibited.
► P2P lending business operators shall be prohibited from preserving principal for investors or making pledges to preserve principal.
► P2P lending businesses shall be required to manage default rates.
III. RULES ON BUSINESS OPERATION
P2P lending business operators may also engage in credit bureau business, financial investment business, electronic financial transactions business, insurance solicitation business and loan brokerage business upon receiving authorization by other financial laws and regulations.
P2P lending businesses shall be prohibited from outsourcing their contract making functions with regard to P2P investment and loans.
IV. INVESTOR PROTECTION
The following rules are drawn up to encourage rational investment decisions and protect investment capital.
► For certain investment products, P2P lending business operators are required to disclose information to investors for a certain period (within 72 hours) prior to making investment.
► Safekeeping of investments will be provided by banks, securities finance companies and mutual savings banks.
► P2P lending to the same borrower will be limited to 70 percent of the P2P loan balance or KRW7 billion. For P2P lending operators whose loan balance is below KRW30 billion, the lending cap to the same borrower will be set at KRW210 million.
► Individual investors may lend up to KRW50 million to the same borrower for a total of KRW500 million per year. Accredited investors may lend up to KRW20 million to the same borrower for up to KRW100 million per year.
► Credit finance institutions will be eligible to make investment within a 40 percent limit of the P2P loan amount.
A central registry will be set up to manage and maintain up-to-date information about online P2P financing transactions, such as information about borrowers and investors, and will also manage limits on loans and investments.
* Please refer to the attached PDF for details.