[Open Forum] Fintech Regulation and the Way Forward

Advances in technology are making our daily lives more convenient. Beyond everyday life, they are also connected to developments in financial technology. Innovation in financial technology is bringing many changes to our economy and financial system. One of the key forces at the center of these changes is fintech. However, such rapid technological progress can come into conflict with regulations that are still incomplete. Why, then, are financial technology innovation and deregulation necessary, and in what direction should they move going forward?

Deregulation is an important means of supporting and promoting financial technology innovation. First, it creates an environment in which fintech companies can experiment quickly and test new ideas. This encourages the development of new financial products and services and can broaden economic diversity. Second, deregulation can provide consumers with a wider range of more affordable financial options. As competition among fintech firms intensifies, the price of financial services can fall and their quality can improve.

There are several reasons why the development of Korea’s fintech industry has been slower than that of other countries. The first is the regulation of “quasi-receipt activities.” At present, P2P-related financial technology is widely used in fintech. However, because South Korea imposes regulations on quasi-receipt activities in relation to P2P lending services, the development of its fintech industry has been slower than in other countries.

Another reason for the slow development of the fintech industry is security. For example, the Electronic Signature Act, which abolishes the formerly required accredited certificate as a means of identity verification, is currently in effect. However, in June 2020, a security incident at Toss resulted in unauthorized payments totaling around 10 million won, bringing the stability of fintech companies under scrutiny. This is because, in the fintech industry, the scale of damage can be enormous if customers’ personal information is leaked or if systems are deliberately hacked.

Financial technology innovation differs from traditional financial services in both speed and scope. Fintech companies are providing new services in a rapidly changing technological environment, thereby improving customer experience and increasing efficiency. However, such innovation can conflict with existing regulations. Excessive regulation can become an obstacle to innovation and hinder the growth of fintech firms.

The United States is a global leader in fintech technology. In particular, it manages the industry through legislation to support the continued growth of the fintech sector. Representative federal laws that directly govern fintech businesses include the Electronic Fund Transfer Act, the Equal Credit Opportunity Act, the Expedited Funds Availability Act, the Securities Act, and the Commodity Exchange Act.

Deregulation must be carried out carefully. A certain level of regulation is necessary to ensure the safety of the financial system. Therefore, the process of deregulation must promote innovation by fintech firms while also taking consumer protection and system stability into account. Regulatory authorities and fintech companies should work together to seek out and implement reasonable regulatory measures.

Financial technology innovation and fintech are providing more innovative financial services and opportunities. Deregulation supports this innovation and can be expected to promote economic growth and diversity. However, a balanced approach is needed, and it is important to achieve innovation in the financial system while maintaining a balance between innovation and stability. Through cooperative efforts and continuous review, financial technology innovation and deregulation will help build a better financial ecosystem.

Jiyeon Bae, Intern Researcher, Center for Free Enterprise (CFE)

---

Original title: [자유발언대]핀테크 규제와 앞으로 나아가야할 방향

Author: Ji-yeon Bae

Date: 2023-12-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=free_opinion&pn=5&idx=26255