Financial Authorities Accelerate Preparation of Big Tech Regulation Plan... Financial Research Institute Calls for Separate Supervision of Platforms

User Protection Guidelines to Be Established by Next Month
'Big Tech Council' Expected to Form Within This Month

[Asia Economy Reporter Kim Hyo-jin] Financial authorities are accelerating efforts to establish regulatory measures in response to the entry of big tech companies such as Naver and Kakao into the financial industry and the activation of financial platforms. There is growing interest inside and outside the financial sector regarding how much concern over the abuse of dominant positions by big tech companies leading massive platforms will be reflected.

According to the financial sector on the 3rd, the financial authorities are preparing guidelines to protect digital finance users, aiming to finalize them as early as this month or by next month at the latest.

A financial authority official explained, "In the case of digital finance, the speed of business entry or expansion by related companies is much faster than in traditional finance, so we are trying to prepare management measures accordingly," adding, "We are looking into the parts deemed urgent for protecting financial consumers."

The financial authorities plan to first establish institutional measures to protect the funds of financial consumers held by digital finance operators. Accordingly, they are promoting ▲mandatory external institution deposit/trust and payment guarantee insurance subscription for user funds ▲mandatory periodic adjustment of the scale of custody and management of user funds ▲mandatory establishment of internal control systems.

For specific business conduct regulations on financial platforms, the guidelines will include measures to ▲prevent users from being misled about the name or sales responsibility entity when providing or linking/partnering products and services ▲prohibit intervention such as changing algorithms in a way favorable to the operator or exposing biased products.

Additionally, measures under discussion include ▲allowing users to freely choose products and services and to stop without disadvantage before contract conclusion ▲regular checks on whether users make biased decisions.

A "Big Tech Consultative Body" aimed at resolving reverse discrimination controversies against existing financial companies and deriving joint development directions for big tech and financial companies is also expected to be formed as early as this month. The financial authorities plan for broad participation from the financial and big tech industries, the Financial Supervisory Service, related institutions, private experts, and consumer groups to review international discussions related to big tech and extensively discuss system risk management measures.

Through this, the financial authorities intend to investigate and improve cases where regulatory arbitrage or fairness issues arise, based on the principle of establishing a fair competition foundation between big tech and financial companies.

"Prevent Abuse of Dominant Position by Online Platforms" "Separate Supervisory Measures Needed for Financial Product Linking and Sales"

In this regard, Lee Bo-mi, a research fellow at the Korea Institute of Finance, recently argued in a report that sufficient regulation and supervision of financial services by large online platforms are necessary.

Since Korean platform companies often act as sales channels for affiliated financial companies’ products rather than directly engaging in financial business, it is necessary to discuss not only risks arising from direct competition between platform companies and financial companies but also risks from new methods of financial product sales through platforms.

She also pointed out that online platforms, which have established dominance as sales channels, should not collaborate only with a few financial companies or hinder competition in the financial market through unfair contracts. She emphasized ▲creating an environment where financial companies can partner with multiple platforms so that a specific online platform does not monopolize the sales channel for financial products ▲designing systems to prevent online platforms from abusing their dominant position.

Research fellow Lee explained, "Separate regulatory and supervisory measures should be prepared for online platforms’ linking and sales of financial products," adding, "Since account management, service responsibility, and related financial regulations apply to affiliated companies, it is difficult to apply the same level of regulation to platform companies as to financial companies."