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Fintech Law and Practice: A Korean Perspective

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Regulating FinTech in Asia

Part of the book series: Perspectives in Law, Business and Innovation ((PLBI))

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Abstract

After reviewing the financial regulatory system and market structure in Korea, this chapter examines the recent development of fintech in the area of banking, capital markets, and payment services. In the banking sector, the main focus is on the development of internet-only banking. Under the strict regulations on the separation of financial capital and industrial capital, technological companies’ entry into the banking business causes serious banking law debates. In capital markets, the application of the fintech model in capital markets such as equity and debt-based crowdfunding and robo-advisors is widely discussed. Easy payment & remittance and crypto-assets are a concern for both legal practitioners and the business sector. The legal character and function of crypto-assets is also a significant issue in Korea. In Korea, institutional efforts to introduce new financial products and services in accordance with the combination of technology and finance are being developed in various fields such as banking and securities. Particularly noteworthy is the introduction of new means of payment. The regulatory sandbox newly introduced by Korea will have an impact on the Korean financial regulatory system, which has traditionally been very conservative. This chapter is based on the law of Korea as of 30 June 2019.

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Notes

  1. 1.

    Balling et al. (2002), p. 1.

  2. 2.

    McWilliams (2018), pp. 1–2.

  3. 3.

    In this chapter, ‘internet-only bank’ refers to a bank which operate through electronic media such as the internet without any off-line offices. This type of internet bank is also referred to as ‘pure-play, internet-only bank, online-only bank, or virtual bank.’

  4. 4.

    Several terms are used for virtual currency such as cryptocurrency; digital currency; virtual asset, crypto-asset, and digital token. However, the term ‘crypto-asset’ has become common recently in international organizations. See Financial Stability Board (2018).

    The term ‘virtual currency’ is used in the law of New York State and Japan (23 NYCRR Sect. 200.2 (p); Japan Payment Services Act, Art2(5)). Some institutions including the Financial Action Task Force(FATF) and Hong Kong Securities and Finance Commission(HKSFC) are using the term ‘virtual assets’. FATF, International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation: The FATF Recommendations, Updated October 2018; HKSFC, Regulatory standards for licensed corporations managing virtual asset portfolios, 1 November 2018.

  5. 5.

    In the insurance sector, we are discussing legal issues involving P2P insurance model and autonomous vehicles including self-propelled vehicle, drone and autonomous vessel in Korea. This chapter does not cover insurance issues.

  6. 6.

    European Commission (2018).

  7. 7.

    [Enforcement date May 5, 1950] [Law No. 139, May 5, 1950].

  8. 8.

    [Enforcement date February 4, 2009] [Law No. 8635, August 3, 2007].

  9. 9.

    [Enforcement date January 15, 1962] [Law No. 973, January 15, 1962].

  10. 10.

    [Enforcement date January 17, 2019] [Law No. 15856, October 16, 2018].

  11. 11.

    [Enforcement date October 27, 2002] [Law No. 6706, August 26, 2002].

  12. 12.

    [Enforcement date January 1, 1998] [Law No. 5374, August 28, 1997]

  13. 13.

    For more on the structure of the FISCMA, see Park (2011), pp. 91–141.

  14. 14.

    [Enforcement date January 1, 2007] [Law No. 7929, April 28, 2006].

  15. 15.

    FSS (2017), p. 10.

  16. 16.

    for more on Korea’s financial regulatory system, see Jung (2017), pp. 734–736.

  17. 17.

    [Enforcement date April 1, 1998] [Law No. 5490, December 31, 1997]. This act was enacted as Act on the Establishment, etc. of Financial Supervisory Organizations in 1997. However, the name of the was changed to the current Act on the Establishment, etc. of Financial Services Commission in 2008. [Enforcement date February 29, 2008] [Law No. 8863, February 29, 2008].

  18. 18.

    Jung (2017), pp. 52–53.

  19. 19.

    The FSC may impose necessary conditions for stabilizing financial markets, securing the soundness of banks and protecting depositors in granting banking authorization (Article 8(4)). The Special Act on the Establishment and Operation of Internet-only Bank 2018 defines ‘internet-only bank’ as ‘a bank that mainly conducts banking business in the manner of electronic financial transactions (transactions pursuant to Article 2 (1) of the Electronic Financial Transactions Act)’ (Article 2).

  20. 20.

    FSC/FSS (2016).

  21. 21.

    Lee et al. (2018), p. 75.

  22. 22.

    Jung (2017), p. 62.

  23. 23.

    Jung (2017), p. 62.

  24. 24.

    The term ‘non-financial business operators’ means any of the following persons:

    (a) The same persons where the total amount of gross capital (referring to the gross amount of assets less the gross amount of debts on the balance sheet; hereinafter the same shall apply) of the persons who are non-financial companies (referring to companies that operate business that is not financial business determined by Presidential Decree; hereinafter the same shall apply) is not less than 25/100 of the total amount of gross capital of the persons who are companies;

    (b) The same person where the amount of total assets of the persons who are non-financial companies is not less than the amount prescribed by Presidential Decree, which is not less than two trillion won;

    (c) An investment company under the Financial Investment Services and Capital Markets Act (hereinafter referred to as ‘investment company’) where a person referred to in item (a) or (b) holds more than 4/100 of the total number of its issued stocks (referring to cases where the same person owns stocks in his/her own name or any other person’s name or has voting rights on such stocks through a contract, etc.; hereinafter the same shall apply);

    (d) A private equity fund under the Financial Investment Services and Capital Markets Act (hereinafter referred to as ‘private equity fund’), which falls under any of the following cases:

    (i) Where a person referred to in any of items (a) through (c) is a limited partner who holds not less than 10/100 of shares in the total investments in the private equity fund (in such cases, shares of the relevant partner and those of other partners who have a special relationship with such partner shall be included in the calculation of shares);

    (ii) Where a person referred to in any of items (a) through (c) is a general partner of the private equity fund (Provided, That, this shall not apply where a person falls under any of items (a) through (c) as a consequence of an investment by a general partner who does not fall under any of items (a) through (c) in stocks or shares of a non-financial company through another private equity fund but limited partners of the relevant private equity fund (including the relevant partner and other limited partners who have a special relationship with such partner) have not made an investment in another private equity fund);

    (iii) Where the sum of shares in the private equity fund, acquired by affiliated companies (referring to affiliated companies defined by the Monopoly Regulation and Fair Trade Act; hereinafter the same shall apply) that belong to different enterprise groups subject to limitations on mutual investment (referring to an enterprise group subject to limitations on mutual investment under the Monopoly Regulation and Fair Trade Act; hereinafter the same shall apply), is not less than 30/100 of total investments in the private equity fund; (e) A special purpose company where a private equity fund referred to in item (d) (including a person referred to in any of items (a) through (c) of this subparagraph, among persons who have acquired stocks or shares of the special purpose company under Article 249-13 (1) 3 (b) or (c) of the Financial Investment Services and Capital Markets Act) acquires and holds more than 4/100 of stocks or shares of the special purpose company or exercises a de facto influence over the major managerial matters of the special purpose company, such as appointment or dismissal of its executives. For more, see Jung (2017), pp. 83–85.

  25. 25.

    [Enforcement Date December 31, 1997] [No. 5493, December 31, 1997].

  26. 26.

    Supreme Court of Korea, March 19, 2009. 2008Da45828.

  27. 27.

    [Enforcement Date November 28, 2001] [No. 6516, September, 2001].

  28. 28.

    There is nothing stipulated in the Enforcement Regulations of the Financial Real Name Act.

  29. 29.

    FSC (2015a); see also, Korea Federation of Banks (2016), pp. 38–39.

  30. 30.

    These guidelines were originally published on February 2017 (enforcement date: February 27, 2017). See FSC/FSS (2018b); see also, FSC/FSS (2018a).

  31. 31.

    FSC/FSS (2018a).

  32. 32.

    ‘[Guidelines] are intended to advise financial institutions on matters that should be considered when dealing with derivatives transactions. …, even if the transaction is against a guideline that prohibits …, it cannot be regarded as an invalidation of the transaction itself.’ Supreme Court, September 26, 2013, 2011Da53683,53690.

  33. 33.

    The terms ‘ordinary investors’ and ‘professional investors’ are defined in the FISCMA. Classification criteria are risk-taking ability of the investors including expertise in financial investment products and the amount of assets owned (FISCMA, Article 9(5)). For more, see Kim and Jung (2013), pp. 151–155.

  34. 34.

    FSS (2018).

  35. 35.

    Bill on Online Loan Brokerage Business (July 20, 2017); Bill on Online Loan Business and User Protection (February 23, 2018). For more, see Ko (2018).

  36. 36.

    Jung (2017), pp. 193–194.

  37. 37.

    Vogel, Herger and Reynolds (2013), p. 3.

  38. 38.

    Ko (2015), p. 28.

  39. 39.

    Loan-based crowdfunding or P2P lending is discussed in Sect. 3. Banking above of this chapter. The legal structure of crowdfunding varies from country to country. See, e.g., Ulrich and Bholat (2016); United States Government Accountability Office (2011).

  40. 40.

    [Enforcement date January 25, 2015] [Law No. 13448, July 24, 2015].

  41. 41.

    FSC/FSS et al. (2018).

  42. 42.

    FSC/FSS et al. (2018).

  43. 43.

    For more detailed discussion on the definition of securities in Korea, see Kim and Jung (2013), pp. 65–95.

  44. 44.

    Financial Intelligence Unit (2018); Korea Blockchain Association (2017).

  45. 45.

    Bank of Korea (2018), p. 51.

  46. 46.

    Accredited certificate or public key certificate was a type of electronic signature which was required in electronic financial transactions in Korea.

  47. 47.

    FSC (2015a).

  48. 48.

    Bank of Korea (2018), p. 79.

  49. 49.

    Bank of Korea (2018), p. 79.

  50. 50.

    Hout and Bingham (2013), pp. 385–391; Lacson and Jones (2016), pp. 40–61.

  51. 51.

    For more on the situation in Korea, see Jung (2018), pp. 6–19.

  52. 52.

    See Kim and Han (2018), pp. 50–68.

  53. 53.

    While cash should be deposited 100% to separate bank account, at least 70% of virtual currency is going to be deposited in cold wallet.

  54. 54.

    Swiss Financial Industry Supervisory Authority (2018).

  55. 55.

    Australian Securities and Investments Commission (2018).

  56. 56.

    HKSFC (2018).

  57. 57.

    Securities and Exchange Commission (2018).

  58. 58.

    Lee (2017), Financial Supervisory Commission.

  59. 59.

    US Commodity Future Trading Commission (2018).

  60. 60.

    In the Matter of Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, CFTC Docket No. 15-29, September 17, 2015(bitcoin options contracts); In the Matter of: BFXNA INC. d/b/a BITFINEX, CFTC Docket No. 16-19, June 2, 2016(leveraged or margined bitcoin trading).

  61. 61.

    CFTC v. My Big Coin Pay, Inc., Case No. 1:18-cv-10077 (D. Mass. Filed Jan. 16, 2018); CFTC v. McDonnell et al., No. 18-CV-361, 2018 WL 1175156, at *12 (E.D.N.Y. Mar. 6, 2018).

  62. 62.

    Securities and Exchange Commission (2018).

  63. 63.

    CBOE Global Markets (2018).

  64. 64.

    HKSFC (2018).

  65. 65.

    Jung (2018), pp. 14-16.

  66. 66.

    Price Waterhouse Coopers (2017), p. 1.

  67. 67.

    Autorité des Marchés Financiers (2017), p. 2.

  68. 68.

    See, e.g., SEC, Release No. 81207/July 25, 2017 Report of Investigation Pursuant to section 21(a) of the Securities Exchange Act of 1934: The DAO; SEC, Release No. 10445/December 11, 2017 In the Matter of MUNCHEE INC., Respondent. ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGS PURSUANT TO section 8A OF THE SECURITIES ACT OF 1933, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER; Swiss FINMA, Guidelines for enquiries regarding the regulatory framework for initial coin offerings (ICOs), 16 February 2018; MAS clarifies regulatory position on the offer of digital tokens in Singapore, 1 August 2017.

  69. 69.

    PROJET DE LOI relatif à la croissance et la transformation des entreprises(ASSEMBLÉE NATIONALE CONSTITUTION DU 4 OCTOBRE 1958 QUINZIÈME LÉGISLATURE Enregistré à la Présidence de l’Assemblée nationale le 19 juin 2018), Art 26 L552-4.

  70. 70.

    FSC/FSS et al. (2017).

  71. 71.

    FSC (2018).

  72. 72.

    Korea Financial Intelligence Unit (2018).

  73. 73.

    Suwon District Court, Sep 7, 2017. 2017GoDan2884.

  74. 74.

    Suwon District Court, Jan 30, 2018. 2017No7120. Court orders forfeiture of Bitcoins for first time, reported in The Investor, January 31, 2018.

  75. 75.

    Supreme Court, May 30, 2018. 2018Do3619.

  76. 76.

    This Guideline was amended on June 27, 2018, 6.27, and will be implemented for one year from July 10, 2018. This Guideline is using the term ‘virtual currency’ as it was made in early 2018. For more, see Lee et al. (2018), pp. 42–48.

  77. 77.

    UK Financial Conduct Authority (2015), Regulatory Sandbox, 1 (November 2015). For more on the legal treatment of regulatory sandbox in Korea, see Jung (2017), pp. 6–15.

  78. 78.

    FSC (2016).

  79. 79.

    [Enforcement Date April 1, 2019] [Law No 16183, December 31, 2018]

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  1. School of Law, Seoul National University, Seoul, Gwanak-Gu, Korea

    Sunseop Jung

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  1. Graduate School of Law, Kyushu University, Fukuoka, Japan

    Mark Fenwick

  2. Graduate School of Law, Kyushu University, Fukuoka, Japan

    Steven Van Uytsel

  3. Zhejiang University, Hangzhou City, China

    Bi Ying

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Jung, S. (2020). Fintech Law and Practice: A Korean Perspective. In: Fenwick, M., Van Uytsel, S., Ying, B. (eds) Regulating FinTech in Asia. Perspectives in Law, Business and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-15-5819-1_4

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