[Why&Next] Financial Authorities' "Regulatory Reform" Undermined... Increasing Obstacles to Innovation

851 Mandatory Financial Regulations This Year
13 More Than Two Years Ago
External Evaluations Point Out "Mostly Preemptive Regulations"
Government Recommendations → Legalization Strengthens Regulatory Intensity

Financial Services Commission Says "Efforts Underway"
But Industry Voices "Hard to Feel the Impact"

Bank A and Card Company A, both promoting the MyData business, had to obtain separate licenses and develop services individually to receive customer information despite being under the same financial group due to financial regulations. They faced difficulties in business promotion as they went through complicated procedures multiple times and spent money redundantly. MyData users also felt inconvenienced because they had to go through the same service consent procedures in the Card Company A app as in the Bank A application (app).

Although the financial authorities formed a task force (TF) to eliminate unnecessary regulations, the total amount of financial regulations has increased over the past two years. There are criticisms that this not only diminishes the innovative drive of financial companies but also blocks the service benefits that consumers can enjoy.

Increasing Trend of Mandatory Regulations... Newly Established and Strengthened Every Year

According to the financial authorities as of the end of September this year, there were 851 cases of 'explicit regulations' under the jurisdiction of the Financial Services Commission (FSC). This number has increased from 789 cases in 2019 and 838 cases in 2021. Financial regulations are divided into explicit regulations and implicit regulations (administrative guidance, self-regulation). Among them, explicit regulations are those that restrict the rights of financial companies or impose obligations on them through laws, presidential decrees, and other statutes, and unlike implicit regulations, they have mandatory force.

There are also a considerable number of explicit regulations newly established or strengthened every year. From January to October last year, 15 new regulations were introduced, and 24 regulations were strengthened. By type of statute, notifications were the most numerous at 32 cases, followed by enforcement decrees with 6 cases, and laws with 1 case. New regulations included 'establishing regulatory grounds for linked and affiliated services for prepaid and debit payment instruments' and 'setting validity periods for designation of data specialized institutions,' while strengthened regulations included 'methods of combining information collections' and 'adjustment of interest rate caps on private mid-interest loans.' In 2021, there were 74 new regulations and 23 strengthened regulations, with new regulations having a higher proportion. Notifications numbered 45, enforcement decrees 40, laws 9, and enforcement rules 3.

When the FSC intends to newly establish or strengthen explicit regulations, it must conduct a self-review according to the 'Financial Regulation Operation Rules' and then receive an appropriateness evaluation from an external institution. According to last year's actual condition evaluation by the Korea Institute of Public Administration, an external evaluation agency, most explicit regulations did not apply evaluation principles such as ex-post regulation and the negative system (a method that allows everything except prohibited items). The Korea Institute of Public Administration pointed out that “although ex-post regulation and the negative system were not suitable and could not be applied inevitably, the reasons for not reflecting them should be more thoroughly described in the regulatory impact analysis report.”

Relatively less stringent 'administrative guidance' has been decreasing recently, but this decline was largely due to its legalization. The number of administrative guidance cases by the FSC increased from 39 in 2019 to 40 in 2021, then decreased to 11 as of September this year. An FSC official explained, “Since administrative guidance lacks mandatory force, making management and supervision ambiguous, it is being legalized to clarify it.” This means the regulatory intensity is becoming stronger. Administrative guidance is not stipulated by law but is an act where authorities request financial companies to perform or refrain from certain actions, effectively acting as shadow regulation equivalent to explicit regulation.

Despite Authorities' Efforts, "Inefficient Regulations Persist," Consumer Benefits Decline

The FSC is also making efforts to improve regulations. An FSC official stated, “According to the Regulatory Cost Management System, we only increase regulations within a set range each year,” and “We are striving to reduce regulatory costs.” At the end of each year, regulatory improvement tasks are selected and announced. This year, a total of 21 tasks were proposed. These include expanding the concurrent and ancillary businesses of personal credit information companies (CB companies) so that CB companies can be designated as data specialized institutions, and allowing insurance solicitation via video calls. The 'Simplification of Actual Loss Insurance Claims,' passed by the National Assembly plenary session on the 6th, is also included here.

However, some unresolved tasks are carried over to the next year, and most do not return to the discussion table. In the triennial sunset review, most regulations are extended. Two cases are subject to review this year.

Many in the field feel they do not perceive the government's efforts for innovative finance. Regulations have rather increased, lowering not only the competitiveness of the financial industry but also consumer benefits. A representative area is the innovative financial service MyData business. Currently, MyData operators such as banks and card companies face difficulties such as duplicated investments and service implementation delays due to financial regulations that prohibit sharing personal credit information between affiliates. The asset management services provided by financial companies are limited to simple asset listings because financial companies are blocked from recommending financial products or making investment proposals.

A financial industry insider said, “Due to difficulties in data collection caused by regulations and reliance on public data, there is a lack of data differentiation among financial companies, and they cannot provide the level of service customers want.” Another financial industry insider also pointed out, “If data circulation were possible, revenue models and services would improve compared to now, but inefficient regulations are blocking this.”