Gradual Increase in External Management Ratio for PG Company Settlement Funds
60% Upon Implementation... '100%' After Two Years
On November 25, it was confirmed that a bill to gradually increase the mandatory external management ratio of settlement funds by electronic payment gateway (PG) companies to 100% has been submitted as an agenda item for the plenary session of the Legislation and Judiciary Committee. After passing the Political Affairs Committee, the bill had been pending for four months, but if it passes the plenary session of the Legislation and Judiciary Committee and the National Assembly’s plenary session the next day, it will take effect one year after its promulgation.
Victims of the delayed settlement incident involving Tmon and Wemakeprice (Timep) held a black umbrella rally on August 25 last year in front of the Financial Supervisory Service in Yeongdeungpo-gu, Seoul, urging the enactment of a special law for victim relief. Photo by Yonhap News
According to political sources, among the 95 items listed on the agenda for the 15th plenary session of the 429th regular session of the National Assembly’s Legislation and Judiciary Committee to be held the next day, the first item is the partial amendment to the Electronic Financial Transactions Act, which includes the provision on the external management ratio of settlement funds by PG companies. The bill was proposed last year by Assemblyman Kang Min-koo, the opposition secretary of the Political Affairs Committee. After being pending in the Political Affairs Committee for about a year following its proposal, it passed the committee last July and now, four months later, is highly likely to clear the Legislation and Judiciary Committee.
If the amendment passes both the Legislation and Judiciary Committee and the National Assembly’s plenary session, it will take effect one year after its promulgation. Upon enactment, PG companies will be required to manage 60% of their settlement funds through external institutions such as trusts or payment guarantee insurance. After one year of enforcement, the mandatory external management ratio will be raised to 80%, and after two years, to 100%.
The industry raised concerns about fairness, noting that under the Large-Scale Distribution Business Act (Fair Trade Commission), e-commerce companies are only required to entrust 50% of their settlement funds to external institutions, but these concerns were not accepted. It is reported that lawmakers from both the ruling and opposition parties in the Political Affairs Committee (National Assembly) and the Financial Services Commission (government) all responded negatively to the industry’s argument. On the contrary, there is a consensus that, although belated, it is fortunate that the National Assembly is finalizing the legislative process. Last July, immediately after the incident involving delayed settlements by Tmon and Wemakeprice (Timep), there was strong public criticism calling for stricter regulations to prevent PG companies from misappropriating customer settlement funds at will.
In line with the National Assembly’s legislative efforts, it is expected that the financial authorities will also significantly strengthen regulations on the PG payment system. In September, the Financial Supervisory Service issued guidelines to expedite the establishment of external management systems for settlement funds by PG companies. The main point of the guidelines is to grant a grace period until the end of the year, allowing PG companies to voluntarily develop IT systems and enter into trust or payment guarantee insurance contracts before the National Assembly’s amendment to the Electronic Financial Transactions Act is enacted.
The Financial Services Commission also indicated it would strengthen regulations related to PG company payments. On November 20, Lee Eogwon, Chairman of the Financial Services Commission, pointed out issues such as the abuse of card payments through PG companies for cash advances or money laundering of criminal proceeds during a meeting with the CEOs of 15 domestic specialized credit finance companies, including card and capital companies. Chairman Lee stated, "We will promptly establish a regulatory framework for card payments through PG companies, including eliminating regulatory arbitrage between prepaid/debit electronic payment instruments and card payments."
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