Urgent Need to Ease Network Separation Regulations... No News on the Electronic Financial Transactions Act

Authorities Acknowledge Need for Improvement but
Delays in Related Law Discussions Cause Difficulties

Reporter Dongju Yoon doso7@

[Asia Economy Reporter Kiho Sung] Calls to ease the "network separation regulation," which has been criticized as outdated, are gaining momentum. Following the fintech (finance + technology) industry, the National Assembly Legislative Research Office has also advised that network separation regulations should be improved to revitalize digital finance. Although financial authorities are showing a progressive attitude, discussions on the related Electronic Financial Transactions Act (EFTA) amendment are repeatedly stalling, delaying the legal revisions that are key to regulatory easing.

According to political circles on the 7th, Suhwan Lee, a legislative researcher at the National Assembly Legislative Research Office, recently proposed in a report titled "Legislative and Policy Tasks Related to Digital Financial Innovation" that the designation of innovative financial services should be actively utilized to improve network separation regulations in the financial sector. He also pointed out the need to establish a "Financial Security Expert Committee" within the Financial Services Commission to ensure independent decision-making.

Network separation is a regulation requiring the separation of internal and external computer networks within financial companies, established to enhance security. However, the fintech industry has consistently raised concerns that network separation significantly slows down service development speed and increases inefficiency.

In particular, the fintech industry has continuously requested exceptions to network separation at least during the development and testing phases. The inefficiency in the development environment must be overcome by increasing personnel, but small and medium-sized fintech companies find it difficult to increase staff indiscriminately. According to the Fintech Industry Association, for a startup with about 25 employees, the network separation regulation requiring separation of internal and external networks costs an additional 500 million KRW, and work productivity drops to below 50%. Big tech companies face similar difficulties. Toss and Kakao Pay were fined 37.2 million KRW and 69.6 million KRW respectively in March and May of this year for violating network separation regulations.

Financial authorities also acknowledge the need for improvement. They particularly emphasize the necessity to apply network separation regulations reasonably in development and non-financial tasks without compromising security. Lee Hyung-joo, head of the Financial Innovation Planning Division at the Financial Services Commission, stated at the opening ceremony of "Korea Fintech Week 2021" last month, "We will gradually rationalize network separation regulations to create a business environment suitable for the untact era."

However, as the EFTA amendment bill is stalled in the National Assembly, the easing of network separation regulations is also failing to gain momentum. The financial authorities plan to organize a working group with financial companies and reflect the changes through subordinate regulations once the EFTA is amended. But delays in the EFTA discussions have also postponed the regulatory easing that was scheduled for the first half of this year.

A fintech industry insider said, "If network separation is implemented, the physical burden such as development time and costs can be significantly reduced," adding, "MyData (personal credit information verification business) operators are also subject to network separation obligations, so we are watching the situation ahead of the full-scale business launch in August."