KDI "Hybrid Deposits Should Be Introduced to Protect New Types of Funds Such as Prepaid Charges"

Report on 'Customer Fund Protection Measures for New Financial Products' Released on the 25th

The Korea Development Institute (KDI) has raised the need to introduce a hybrid deposit protection system to safeguard customer funds related to new financial products, such as prepaid charges and virtual asset deposits, which amount to 18 trillion won.

On the 25th, KDI Research Fellow Hwang Sun-joo proposed this in a report titled "Measures to Protect Customer Funds of New Financial Products." The hybrid deposit protection system combines an indirect protection method, where companies deposit customer funds in banks, with a direct protection method, where funds managed by companies are directly protected by the Korea Deposit Insurance Corporation.

Research Fellow Hwang estimated that customer funds related to new financial products currently total 18 trillion won. Although there are separate regulatory controls for managing customer funds, he pointed out that companies facing imminent bankruptcy are likely to violate these regulations, which ultimately leads to customer losses. He proposed the hybrid protection system from the perspective of adhering to the basic principles of insurance, which include high effectiveness of protection and insurance premiums proportional to risk.

Hwang noted that there have been many cases of damage where customer funds related to new financial products were not returned, such as the Merge Point incident, Coinzest incident, and Hangang Life incident, both domestically and internationally. He emphasized, "Considering three major criteria?stable financial innovation promotion, similarity to existing protected financial products, and national economic importance?prepaid charges, virtual asset deposits, P2P loan deposits, and advance payments for funeral services should be recognized as protection targets."

However, he pointed out as a weakness that implementing the hybrid protection system would require significant changes to the existing system, such as legally incorporating new financial products, which are currently classified as non-financial products, into the scope of deposit protection.