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Korean government establishes legal basis to promote peer-to-peer lending

The Financial Services Commission (FSC) has announced that the National Assembly has passed an Act on online investment-linked financing

03 November 2019

The new legislation is intended to remove the legal uncertainties on peer-to-peer lending, promote the stable development of the peer-to-peer lending industry and provide adequate protection for both lenders and borrowers.

The new legislation establishes a legal basis for the operation of peer-to-peer lending businesses and the regulatory oversight role of the FSC.

Key Provisions

The key provisions of the legislation set out that:

  • peer-to-peer lending firms must be registered with the FSC and have at least 500 million won in capital;
  • peer-to-peer lending firms must publicly disclose information related to transaction structure, financial management status, loan size, delinquency rate, etc.;
  • interest on peer-to-peer loans will not exceed 24% under the Credit Business Act;
  • high-risk practices, such as lending to peer-to-peer businesses and largest shareholders, lending loans prior to raising funds from investors, and maturity mismatch between investment and loan, will be prohibited;
  • a peer-to-peer lending ceiling will be established for both borrowers and lenders;
  • peer-to-peer lending firms will abide by a set of guidelines to provide investors with information to help make investment decision and protect investors in the event of bankruptcy or embezzlement; and
  • the FSC and the FSS will assume the regulatory oversight role over the peer-to-peer lending industry.

The FSC has indicated that the specifics of the new legislation will be publicly announced before the end of 2019 in order to speed up the registration and application process for the peer-to-peer lending firms during the second half of 2020.

In the meantime, the Korean government will communicate with market participants and experts in the process of determining the specifics of the enforcement decree.