SOUTH KOREA Law and Practice Contributed by: Jongbaek Park, Seungil Hong, Seyeong Im and Eric Jeong, Bae, Kim & Lee LLC
2.3 Compensation Models The compensation restrictions and disclosures under traditional financial regulations are applicable to fin - tech service providers as well. For example, the Lending Business Act imposes a limitation on brokerage fees and restrictions on loan brokers that they may not receive brokerage fees from the users of lending services and should instead receive fees from the relevant credit financial institu - tions within the prescribed cap under the same Act. Under the Financial Consumer Protection Act, if a financial product distributor solicits an ordinary finan - cial consumer (or a retail investor) to conclude a con - tract or is requested by an ordinary financial consumer to provide an explanation, the financial product dis - tributor should explain relevant fees in a way that an ordinary financial consumer can understand properly. Financial investment service providers under the FSCMA may receive fees based on the size of the transactions or assets they manage. These fees may be disclosed in periodic reports submitted to the regu - lators or in securities registration statements filed in connection with public offerings. In specific cases, such as with investment advisory business, discre - tionary investment business and public offering funds, performance-based compensation may be prohibited. Legislative bills on particular fintech business mod - els contain provisions on fees. For example, the P2P Lending Act requires an online investment-linked financial business entity to provide information con - cerning fees and other incidental expenses through its online platform so that its users can easily under - stand it. 2.4 Variations Between the Regulation of Fintech and Legacy Players As mentioned in 2.2 Regulatory Regime , laws and regulations applicable to legacy players such as the Banking Act, the FSCMA, the Insurance Business Act and the Financial Consumer Protection Act apply equally to fintech companies. Additional laws and regulations relating to fintech business models, such as the EFTA, the Internet Bank Act, the P2P Lending
Act and the AML Act, apply depending on the nature of the business activities. These additional laws do not necessarily suggest the application of a more stringent regulatory framework. In some cases, the new legislation excludes the appli - cation of existing regulations, thereby allowing more flexible regulatory treatment for fintech companies. For example, while the Banking Act limits sharehold - ing by non-financial dominant shareholders (industrial capital) in banks to 4%, the Internet Bank Act raises this limit to 34%, effectively excluding the application of the Banking Act’s restriction in this context. 2.5 Regulatory Sandbox To promote financial innovation, a regulatory sandbox programme was introduced in 2019. This programme fully or partially exempts eligible fintech companies from various restrictions and requirements under financial-related laws (including permits and approval requirements). Under the Special Act on Support for Financial Innova - tion, financial services that are considered innovative in terms of their content, method or form compared with the existing financial services may be designated as innovative financial services (regulatory sandbox). Once a service provider applies for the regulatory sandbox programme, the Financial Services Com - mission (the “FSC”) will review whether the service in question is eligible for designation as an innovative financial service. As part of the review process, the following factors are considered: • innovativeness of the service; • convenience and benefits for consumers; • inevitability of application of regulatory exceptions; and • stability of the financial market and financial order. Once a company is designated as providing innova - tive financial services, it may engage in the innovative financial services to the extent permitted according to its designation without any separate licence or may be exempt from complying with various ongoing requirements under laws and regulations that would
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