Starting from 2019, P2P (Peer to Peer) lending companies must announce where loans will be used, information on borrowers, and whether one’s equity was inputted. Also, they will not be able to operate loan products that receive investments from new investors and return them to current investors.
Financial Services Commission (FSC) and Financial Supervisory Service (FSS) announced that they will be enforcing revised guideline on P2P lending with such information starting from 2019.
First, they decided to drastically increase more responsibilities on P2P lending companies regarding what they have to announce. While PF (Project Financing) loan companies only had to announce current state of construction, borrower’s input of equity, and breakdown of how loan is used in the past, now they have to announce entire business, financial information of borrowers, enforcers, and constructors, and purpose of loan.
Major items such as title insurance and security rights setup will need to be announced based on examination by outside experts. Real estate P2P lending products such as PF lending will need to be announced 48 hours before they go on sales so that there is enough time for deliberation before investment.
FSC and FSS also decided to limit unhealthy companies and high-risk companies. Operation of funds with maturity mismatch through short-term procurement will be prohibited completely. Also, they are requiring companies to post warning whenever they sell high-risk products.
System for protecting investors’ funds will also be strengthened. Loan payments will be stored separately from loan companies’ properties just like investments and there will be guidelines for possible bankruptcy and liquidation of P2P lending companies to protect investors’ funds.
FSC and FSS are going to inspect security management systems through outside organizations such as Financial Security Institute and they have decided to include employees of P2P lending companies to an area where P2P lending is limited.
FSC and FSS are also requiring companies that sell P2P lending products through platform providers to provide more information. Whenever P2P lending products are advertised or sold through platforms different from P2P lending companies, fact that corresponding products are P2P lending products, contracts are carried out through P2P lending companies, and P2P lending products have risks must be provided to consumers.
FSC has also decided to establish a separate law that will regulate P2P lending. It will have discussions centered on 5 bills that are currently proposed to The National Assembly. Currently, 5 bills related to legislation of P2P lending are pending within The National Assembly and 3 of them are from Min Byung-du, Kim Soo-min, and Lee Jin-bok members and 2 of them are from Park Kwang-on (lending business act) and Park Seon-sook (capital market act) members.
If P2P lending is regulated by legal system, relevant companies need to be approved separately by financial authorities. If they were to fail evaluation by authorities, they will not be able to continue their current businesses.
“Companies that do not receive approvals from financial authorities must not continue their businesses.” said Kwon Dae-young who is the head of FSC’s Financial Innovation Planning Department. “If legislation is completed within the first quarter of next year, it will take about 6 months for relevant laws to be implemented. We expect that we will be able to start evaluation process of P2P companies starting from the second half or the third quarter of next year.”
Staff Reporter Park, Yoonho | yuno@etnews.com