|KakaoPay CEO Ryu Young-joon / Korea Times file|
The government will come up with measures to better protect money deposited into accounts managed by fintech firms such as Kakao Pay, Toss and Naver Pay, popular mobile payment apps.
The Financial Services Commission (FSC) said Monday that efforts are underway to revise a related law governing online financial business operators.
"Specifics will be finalized in the latter half of 2019 upon the passage of pending bills. Various measures are under consideration," an FSC official said.
The revision seeks to establish an institutional framework including legal measures to protect the money that customers put in the fintech firms' accounts for easy, fast and real-time wiring.
Under the law enforced by the Korea Depository Insurance Corp. (KDIC), up to 50 million won ($42,000) held by each commercial and savings bank is protected.
The KDIC measure seeks to prevent or limit massive confusion caused by a possible default by large financial firms, thereby limiting far-reaching consequences involving customers who will be hit directly if they are unable to withdraw money when the need arises.
Possible measures include designating certain banks to hold the money or introducing a system similar to that operated by the KDIC.
The move comes amid an increase in the amount held in the fintech accounts over the past few years, despite a lack of protection measures.
Over 279.2 billion won was deposited into fintech accounts as of 2018, a 52 percent increase from a year earlier when the amount was 183.6 billion won.
The amount can be used as the firms see fit in the form of asset management, the risk of which will soar if the firms see continued poor performance.
No preventative or punitive measures are in place in case the firms engage in high-risk, high-yield investments, a basis for accelerating the government's move.
A graver problem is the possible moral hazard that can be illustrated by the firms' refusal to return money held for over five years.
This can very much materialize because under the current law the statute of limitations on bank deposits eligible for government protection is five years.
The government will advise the firms to return the money regardless of the five-year limitation.
"The fintechs have grown at a rapid pace over the past few years, increasing the need for the government to implement corresponding regulations. The new measures will seek to boost consumer protection," the official added.