Cancellation Notice of OnTu Companies Including Modu's Fintech
'Industry's Long-Awaited' Institutional Investment Expected No Earlier Than Late February
"More OnTu Companies Will Close This Year"
The wave of mass closures among online investment-linked finance businesses (On-tu-eop) is intensifying, raising a sense of crisis within the industry. As frozen investor sentiment causes peer-to-peer (P2P) loan investors to withdraw, many small firms are finding it difficult to continue operations.
According to financial authorities and the financial sector on the 9th, the Financial Services Commission has issued preliminary notices of deregistration (hearing notices) to 2 to 3 On-tu-eop companies that have had no business performance for more than six months. If these On-tu-eop companies fail to explain their poor business performance at the hearing scheduled for early next month, their registration will be canceled under current law, effectively constituting a 'de facto business closure.'
In particular, Modu-ui Fintech (formerly HB Fintech) changed its name early last year and attempted a relaunch, but it has been confirmed that it has had no business performance since June 2023. It violated the obligation to maintain registration requirements by dismissing compliance officers and IT personnel and suspending platform operations. According to Article 49 of the On-tu-eop Act, the Financial Services Commission can cancel the registration of companies that have no business performance for more than six months or fail to maintain registration requirements such as personnel and IT facilities.
A Financial Services Commission official explained, “We have sent hearing notices to On-tu-eop companies, including Modu-ui Fintech, that have had no business performance for more than six months. Leaving financial companies in a state of de facto business closure could be exploited for crimes in the future, so we are either encouraging license returns or canceling registrations ex officio in accordance with the On-tu-eop Act and the Administrative Procedures Act.”
The wave of mass closures in the On-tu-eop industry began in earnest in the second half of 2022. In December of that year, Graph Funding (formerly BF Fund), ranked seventh in the industry, ceased operations citing the real estate market downturn. Then, in March last year, registrations of three On-tu-eop companies?Bid Funding, Sugar Funding, and TGS Finance?were also canceled. According to the On-tu-eop Association, the number of registered On-tu-eop companies once reached as high as 54, but it is expected to fall below 50 following these measures.
The reason these On-tu-eop companies are closing or ceasing operations is due to a drought in investment and a decrease in loan balances, making actual business difficult. On-tu-eop operates by pooling investor funds to provide loans to borrowers, but the high-interest-rate environment continued until October last year, increasing the risk of delinquency due to credit loan defaults and delayed real estate market recovery. As a result, the loan balance in the On-tu-eop industry peaked at KRW 1,415.2 billion in May 2022 (according to the On-tu-eop Central Record Management Institution) and has been declining since. Last month, it was recorded at KRW 1,106 billion, down more than KRW 300 billion from the peak.
Although financial authorities have proposed regulatory improvements to 'save the On-tu-eop industry,' the implementation of related services appears to be delayed. In July, the Financial Services Commission enabled the long-awaited goal of attracting domestic financial institution investments to the On-tu-eop industry, which had been pending for three years. Accordingly, 29 savings banks initially planned to execute linked investments for On-tu-eop credit loan borrowers in the second half of last year, but related products are expected to be launched no earlier than the end of next month. This delay is due to the time required to build a system for money flow between sectors and to reassess debtor information.
An On-tu-eop industry insider lamented, “The real economy and startup market are both cold. More On-tu-eop companies are expected to follow the path of closure without making it through this year.” Another insider hinted, “While the situation of large On-tu-eop companies is relatively better, it is often heard that small firms can no longer continue operations.”
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