South Korea’s “regulatory sandbox” policy for the finance sector will take effect next week, bringing in a system of flexible regulations with the goal of accelerating innovations in financial technology.
The Special Act on Financial Innovation Support was enacted in the legislature in November last year and formally takes effect April 1. Under the legislation, the Korean government is seeking to foster emerging startups in new business arenas — especially the fintech sector, which seeks to innovate financial services through technology.
A regulatory sandbox is a mechanism for the development of regulations that do not unduly slow down the pace of innovation. For instance, regulations could be temporarily suspended for new forms of financial services and business models while they are being tested in the market. Regulations would be introduced later, once it became clear what kinds of regulations were appropriate and reasonable.
Under the special act, companies selected by the Financial Services Commission to partake in the regulatory sandbox are exempt from current financial regulations. To protect consumers from potential harm, participating companies are required to submit consumer protection and risk management plans, which the FSC must approve before their services can be tested.
Exemption lasts up to two years, after which the special regulatory status will end. During this two-year period, the FSC will support the development of fitting regulations for the particular service being tested out, it said.
According to the FSC, the main categories of fintech innovation are payments and money transfers, capital markets and robo-advisers, insurance, big data, credit score checking and blockchain technology.
Last week the FSC announced that it had completed the necessary regulatory framework for the special act, so it can immediately be put into action.
The financial regulator has finalized its list of 25 panelists to take part in evaluating candidate companies to decide whether they are eligible for regulatory exemptions under the new law. The panel will consist of the FSC chairman and officials from relevant government ministries, as well as 15 outside figures from the technology, financing and legal sectors.
The FSC has received 105 business proposals from 88 companies, including finance companies and fintech startups. Of those, 20 are scheduled to be considered as priority evaluation subjects in April, after the law officially takes effect.
This means new services launched under the regulatory sandbox policy may begin operations in May at the earliest, though the timing will differ for each business, an FSC official explained.
The remaining 85 proposals will be considered by the FSC in May and June. The regulatory body will also accept additional applications in June, and will complete the evaluation process for those applicants by year-end.
The FSC expects the new policy to provide expanded investment procurement opportunities for fintech firms and to help the government evaluate the impact of new fintech services more effectively so that it can draw up suitable regulations.
It will also encourage more collaborative partnerships between finance companies and fintech startups, while consumers will benefit from a diverse array of financial services, according to the FSC.