[Asia Economy Reporter Song Seung-seop]A fund manager at asset management company A recently launched a fund investing in a U.S. P2P finance company. It was a P2P finance model that lent tuition or living expenses to American college students at rates cheaper than the market interest rate. However, even if it is a private equity fund established in Korea, it cannot invest funds in domestic college students. This is because the Capital Markets Act restricts asset management and explicitly prohibits investment in personal credit-linked loans. The fund manager described this as a “regulatory irony.”
Concerns have been raised that online investment-linked finance businesses (OnTu businesses), which officially launched last year, have not grown due to financial authorities’ regulations. There are calls to revise strict or ambiguous regulations in various institutional investments and concurrent businesses to revive the OnTu industry.
According to the industry on the 13th, the Fintech Industry Association held a forum titled “One Year Since the Enforcement of the Online Investment-Linked Finance Act: Evaluation and Development Directions,” hosted by Yoon Kwan-seok, a member of the National Assembly’s Political Affairs Committee from the Democratic Party, and jointly organized with the Online Investment-Linked Finance Association. The forum took place at Seminar Room 1 in the National Assembly Members’ Office Building, Yeongdeungpo-gu, Seoul, the previous day.
On the day, Hwang Hyun-il, a lawyer at Sejong Law Firm, who presented on “Regulatory Improvement Measures for Fostering Online Investment-Linked Finance Business,” pointed out, “Despite the purpose of enacting the OnTu Act, investment is difficult due to restrictions under various sectoral laws.” This is because, although the OnTu Act allows linked investments by financial institutions, it is impossible to provide borrower information necessary for financial institutions’ credit screening.
Lawyer Hwang further stated, “It is necessary to allow indirect investment to activate institutional investors’ investments,” and pointed out, “The Capital Markets Act restricts private equity funds’ asset management, prohibiting investment in personal credit-linked loans.” He advised, “Since the prohibition is based on the premise that private equity funds lending to specific individuals pose a high risk of financial accidents, it is possible to exceptionally allow investments in OnTu operators by imposing diversification requirements on borrowers and limits on loan amounts per individual borrower.”
Yoon Min-seop, a research fellow at the Korea Financial Consumer Protection Foundation, who presented on “The Current State of P2P Finance and Institutional Improvement Directions,” pointed out, “The existing financial sector’s loan limit regulations are being used as loopholes, and market aggregate limit regulations are applied. Currently, the P2P loan market size is about 2.5 trillion won, but about 70% is concentrated in real estate-secured loans, limiting the role of supply chain finance.”
As a solution, Research Fellow Yoon suggested, “Institutional improvements are needed to diversify loan products,” and “There should be institutional improvements and policy considerations to reduce costs.”
A Financial Services Commission official who participated as a discussant on the day emphasized, “Although P2P companies have better technology and innovation than existing financial companies, they need to prove it in practice,” and added, “If it is proven after one year that our innovation is excellent, the number of regulatory improvements could be not just four or five, but seven or eight.”
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