Bank of Korea: "Should Financial Services Commission Oversee OO Pay Internal Transactions? Excessive Regulation and Authority Infringement"

Bank of Korea and Financial Services Commission Face Growing Conflict Over Electronic Financial Transactions Act

[Image source=Yonhap News]

[Asia Economy Reporter Kim Eun-byeol] The Bank of Korea (BOK) has directly contradicted the Financial Services Commission (FSC) over the authority to manage and supervise payment and settlement services conducted through companies like Naver and KakaoPay. On the 25th, the BOK issued a second rebuttal document to the FSC. It is unusual for the BOK to release materials that openly criticize the FSC, drawing attention to the FSC's response as well.

On the same day, the BOK released a separate statement criticizing the FSC's push to amend the Electronic Financial Transactions Act, stating that "mandating big tech and fintech companies to process even internal transactions within the payment and settlement system is not only excessive regulation but also a potential risk to the payment and settlement system that the BOK has managed stably for decades."

The 'Electronic Financial Transactions Act Amendment' that the BOK opposes is a bill recently promoted by the FSC. This amendment includes the establishment of the 'Electronic Payment Transaction Clearing Business' and mandates that not only transactions between big tech and fintech companies but also internal transactions within these companies be processed through the payment and settlement system of the Korea Financial Telecommunications and Clearings Institute (KFTC).

Electronic payment transaction clearing refers to offsetting claims and debts during the fund transfer process to simplify transactions. When multiple transfer transactions occur between different banks, for example, Bank A and Bank B calculate the net amount owed to each other to finalize the settlement amount. The KFTC is a representative entity that performs such electronic payment transaction clearing services.

Therefore, the amendment also includes supervisory authority of the FSC over the KFTC and similar institutions. Ultimately, the BOK interprets the FSC's amendment as an attempt to manage the KFTC. The BOK already operates the BOK Financial Network and is responsible for the final settlement operations of the KFTC's payment and settlement system, as well as monitoring (evaluation, improvement recommendations, etc.) the KFTC's payment and settlement system.

The BOK likened the controversial amendment to a 'Trojan horse,' stating, "The FSC has slyly added a policy that is clearly in conflict with the BOK's role to its innovation list," and criticized that "designating the KFTC as a digital payment transaction clearing business operator to subject it to FSC's regulatory supervision is the intention behind this."

Furthermore, the BOK rebutted, "Since internal transactions of big tech and fintech companies do not require clearing procedures between financial institutions, there is no reason for them to be processed through the payment and settlement system, making this mandate an excessive regulation." It emphasized, "Even when looking at major countries, except for China, there are no cases where internal transactions of big tech and fintech companies are required to be processed through the payment and settlement system."

Meanwhile, the BOK stated that if the Electronic Financial Transactions Act amendment is promoted, the authority of the BOK's Monetary Policy Committee will also be nullified.

A senior BOK official said, "The BOK Monetary Policy Committee has the authority to approve the use of the BOK Financial Network by payment and settlement system operators," adding, "If the FSC gains authority over the approval and cancellation of clearing institutions, corrective orders, and disciplinary actions against institutions and their executives, it will ultimately undermine the authority of the Monetary Policy Committee." Payment and settlement operations are considered an inherent core function of the central bank with issuing authority because they involve managing settlement risks and providing liquidity support. In most countries, the central bank operates and manages the payment and settlement system.