MyPayment Legislation Process Kicks Off... Yoon Kwan-seok Proposes Amendment to the Electronic Financial Transactions Act

[Asia Economy Reporter Kangwook Cho] The legislative process for introducing MyPayment (payment instruction transmission service), comprehensive payment settlement operators, and allowing postpaid payments is set to accelerate.

Yoon Kwan-seok, chairman of the National Assembly's Political Affairs Committee, announced on the 29th that he has taken the lead in proposing an amendment to the "Electronic Financial Transactions Act."

Chairman Yoon stated, "To provide financial service innovations that the public can tangibly experience in a stable manner, we have carefully prepared the bill through extensive communication with related agencies, experts, and stakeholders over a long period." He added, "Even after the bill's proposal, we will listen to public opinion and opposition party views, thoroughly review any areas for improvement, and faithfully fulfill the National Assembly's role required by the era's challenge of financial innovation."

Since its enactment in 2006, the Electronic Financial Transactions Act has undergone several partial amendments. However, there have been ongoing criticisms that it has limitations in properly regulating the rapidly changing reality of digital finance brought about by the emergence of smartphones and fintech innovations over more than a decade. Major foreign countries have also recognized the trend of digital transformation in finance and are competing to revise related laws and systems to encourage competition and innovation in the digital finance sector.

Accordingly, the government and ruling party have been preparing amendments to the Electronic Financial Transactions Act following the enactment of the "Special Act on Financial Innovation Support" and amendments to the "Act on the Use and Protection of Credit Information," to establish a legal and institutional foundation for promoting financial innovation policies such as financial regulatory sandbox, open banking, big data and MyData activation, fintech, and digital finance.

After the government's announcement of the "Comprehensive Digital Finance Innovation Plan" in July, Chairman Yoon spent over four months listening to opinions from the financial sector, fintech industry, and related agencies, while reviewing and coordinating the bill's content with the Financial Services Commission, the relevant ministry. In October, the amendment to the Electronic Financial Transactions Act was included in the Democratic Party of Korea's "Top 10 Legislative Tasks for Future Transition K-New Deal," under the "Digital and Non-face-to-face Industry Promotion Task."

This amendment aims to foster fintech and big tech (large ICT companies entering the financial industry), while strengthening user protection and securing stable service infrastructure in response to the accelerated digital transformation of the entire financial sector.

Specifically, it includes ▲ the introduction of new licenses such as payment instruction transmission service (My Payment) and comprehensive payment settlement operators, and the restructuring of the electronic financial business regulatory system including rationalization of entry regulations, ▲ the allowance of postpaid payment services (small amount) for payment settlement operators, and other provisions related to the maintenance and promotion of the digital financial industry (electronic financial business).

Additionally, it covers ▲ mandatory segregation and external clearing of user deposits by electronic financial business operators, ▲ improvements to authentication and identity verification systems to prevent forgery and alteration financial accidents, ▲ strengthening the responsibility of financial companies for unauthorized transactions and imposing cooperation obligations on users, ▲ establishing user protection systems for financial platform operations and supervisory systems for domestic and overseas big tech financial industry entry, and ▲ establishing financial security and risk management supervisory systems to enhance user protection and system safety in digital financial transaction services.

Notably, the clause mandating external clearing through clearing institutions for big tech companies caused some backlash from the Bank of Korea, as the Financial Services Commission would hold the authority to approve and supervise electronic payment transaction clearing institutions.

The amendment includes a proviso stating that "the Financial Services Commission's supervision and inspection shall exclude tasks related to the Bank of Korea linked operations within the Korea Financial Telecommunications and Clearings Institute (KFTC), such as the provision of net settlement systems by the Bank of Korea to KFTC to reduce settlement risks like credit risk and liquidity risk." Chairman Yoon is reported to have proposed this compromise to minimize conflicts between the Financial Services Commission and the Bank of Korea.