Regulator pursues 'negative system' for fintech

Financial Services Commission Vice Chairman Kim Yong-beom, right, speaks at a taskforce meeting on regulatory reform and innovation at the Government Complex in Seoul, Friday. Yonhap

By Park Hyong-ki

The Financial Services Commission (FSC) will shift toward a “negative regulatory system” this year in order to create an ecosystem where fintech startups are freer to try innovative ideas.

To that end, the country's financial regulator plans to come up with comprehensive reform measures to spur innovation in finance through technology by June.

In a taskforce meeting with industry executives, Friday, FSC Vice Chairman Kim Yong-beom said the regulator will relax and abolish about 1,000 rules and administrative guidelines governing the financial sector.

The comprehensive regulatory reforms, enabling financial companies to invest directly in fintech startups and big data companies, are included in this initiative, he added.

“These are part of our efforts to adopt a negative regulatory system beginning in the second half, and let private companies self-govern and lead in innovation,” the vice chairman said.

Under a negative system, companies will face fewer preconditions and regulations when it comes to investing in and launching new fintech services. But they will face stronger penalties if they cheat their customers and abuse the system.

In contrast, a positive system works in an opposite manner: All new businesses and services must first comply with a long list of regulations before their introduction.

For instance, under a positive system with laws governing financial and nonfinancial companies, financial companies such as banks had been forbidden from acquiring or investing directly in assets beyond their sector.

This meant they could not invest in tech companies, except indirectly through a fund or a startup program.

Given fintech startups had been considered more as nonfinancial companies rather than conventional financial companies, it has been difficult for banks to acquire them.

Analysts say the country is making “positive incremental steps” toward overhauling the positive regulatory environment into a negative one.

The FSC is moving to give more authority to financial companies in investing in fintech assets and launching new services through a collaborative ecosystem as part of these efforts, they said.

“Revisions to boost internet banking and the introduction of a regulatory sandbox to encourage new digital services are one step toward the negative system,” said Oh Se-kyung, a researcher at the Korea Finance Institute.

This change will require companies to strengthen their internal risk management amid the “unbundling” of services and freer flow of data, Oh added.

Unbundling refers to companies offering services separately that had been “bundled” or tied together previously.

Banks, for example, used to be the only kind of company that provided deposit, loan and money transfer services altogether as a single package.

But digital technology has enabled the emergence of new companies and applications to provide them separately in accordance with customers' needs.

There are now peer-to-peer loan, overseas wire transfer, QR code payment and automated asset management apps.

“We will ensure the people will start to feel the changes in the regulatory system,” FSC Vice Chairman Kim said.