Many P2P Lenders Turn into Loan Sharks, Business Suspension Possible
Cryptocurrency Market Also Expected to Face Major Turmoil in September
[Asia Economy Reporters Sunmi Park, Hyojin Kim] As the business registration deadline for online investment-linked (P2P) companies and cryptocurrency operators approaches, concerns are growing that victims of 'meoktwi'?where investors lose their funds due to business closures?will surge.
According to the financial sector on the 5th, only about 40 companies have applied for registration ahead of the expiration of the grace period for the enforcement of the Online Investment-linked Finance Business Act (OnTu Act), which brings P2P finance under regulatory oversight next month. Currently, there are about 100 P2P companies operating, and those that fail to register with authorities by the 26th of next month must close their doors.
Considering that the registration review by authorities typically takes about three months, it is practically impossible for companies that have not yet applied to complete the process within the deadline. The market expects many companies to either degrade into loan businesses or shut down operations one after another.
This raises issues regarding the recovery of a significant portion of the 1.7 trillion won investment funds. Although it is stipulated that debt collection should be entrusted to law firms for loan claim recovery, there is no legal binding force.
A P2P company official said, "It is difficult to expect companies forced into an 'unregistered' status and having to cease operations to strive to return investment funds to investors," adding, "Many companies are expected to follow the 'meoktwi' path, leaving investors to bear the losses alone."
The cryptocurrency market, where many in their 20s and 30s have invested by borrowing money, is also expected to face chaos in September. According to the amended Act on Reporting and Using Specified Financial Transaction Information (Special Act), cryptocurrency exchanges must complete business registration with the Financial Intelligence Unit (FIU) of the Financial Services Commission by September 24, meeting requirements such as real-name verified deposit and withdrawal account opening and Information Security Management System (ISMS) certification.
An FIU official explained, "Currently, although more than 10 exchanges have met the ISMS certification requirements, only a few have secured bank real-name accounts, so even if they avoid closure through registration, many exchanges will be unable to operate won markets."
Except for four companies?Upbit, Bithumb, Coinone, and Korbit?that currently have contracts with banks for deposit and withdrawal accounts, the possibility of other companies securing new real-name accounts has become slim. Banks have requested exemption from liability from financial authorities due to concerns about future financial accidents, but Financial Services Commission Chairman Eun Sung-soo publicly rejected this.
Market Impact Inevitable if Exchanges Close in Large Numbers
The problem lies in the fact that without exemption rights, banks are reluctant to actively issue real-name accounts, making the mass closure of exchanges inevitable. Consequently, there are concerns that many victims will emerge who cannot recover their funds and suffer losses due to mass closures.
A financial industry official predicted, "A 'coin run' where users simultaneously attempt to withdraw funds could occur around September, and some who operated on a 'ponzi-like' basis will be unable to return money," adding, "Various lawsuits will proliferate, and investors are likely to rush to banks demanding fund withdrawals instead of the closed exchanges."
Financial authorities have begun reviewing measures to strengthen notifications to minimize investor losses ahead of the mass closures of P2P companies and cryptocurrency exchanges expected in August and September. A Financial Services Commission official stated, "We will review specific information provision schedules and scopes through legal review and consultations with related agencies."
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