SOUTH KOREA Law and Practice Contributed by: Jongbaek Park, Seungil Hong, Seyeong Im and Eric Jeong, Bae, Kim & Lee LLC
4. Online Lenders 4.1 Differences in the Business or Regulation of Fiat Currency Loans Provided to Different Entities Under the Financial Consumer Protection Act, financial consumers are categorised into professional financial consumers and ordinary financial consumers. Financial companies (lenders) offering loan products to ordinary financial consumers should comply with a set of rules, such as obligations to identify a cus - tomer’s status, to refrain from offering inappropriate products or unfair terms and to explain material terms of the product offered. Individuals and small business - es with fewer than five employees are classified as ordinary financial consumers. It should also be noted that internet-only banks may only provide loans to individuals and small and medi - um-sized enterprises in line with the Internet Bank Act. This restriction does not generally apply to other commercial banks. 4.2 Underwriting Processes There is no separate regulation regarding the under - writing of online lending. However, under the Lend - ing Business Act, licensed lenders and credit finan - cial institutions such as banks can only transfer loan receivables to registered debt collection agencies, other credit financial institutions and other entities specifically listed under the Act. 4.3 Sources of Funds for Fiat Currency Loans Banks take deposits from customers and use them to provide loans to borrowers, subject to specific deposit reserves and other various regulations under the Banking Act. Non-bank lenders, which are generally regulated under the Lending Business Act, may not take deposits from customers and may only use their own funds to provide loans to customers. P2P lending platforms accept cash investments from investors and utilise the amount of the investment to provide loans to borrowers, subject to certain investment cap and other regulations under the P2P Lending Act. It is not common for capital to fund online lending businesses in Korea to be raised through securitisation.
4.4 Syndication of Fiat Currency Loans Online loan syndication is not common in Korea as banks typically syndicate loans for large-volume transactions, which does not usually proceed online. 5. Payment Processors 5.1 Payment Processors’ Use of Payment Rails There is no legal requirement for a payment processor to use the existing payment rails. A payment proces - sor that starts a new business may utilise a partner - ship with an existing payment processor that already has an established network. However, this business practice is driven by commercial considerations rather than legal factors. 5.2 Regulation of Cross-Border Payments and Remittances Cross-border payments and remittances are subject to the FETA. Any person who intends to engage in a cross-border payment and remittance business has to register the business with the Ministry of Economy and Finance in advance in line with the FETA. Financial companies are generally permitted to make cross-border payments within the scope of their registered foreign exchange businesses. A registered small-amount cross-border remittance business entity may also handle cross-bor - der payment and receipt up to a specific threshold per transaction and an annual aggregate cap. Unless exempted by registration or other grounds, any person who engages in a cross-border capital transaction (such as lending/borrowing, raising capital and investing) may be required to file a report with the foreign exchange regulators. In addition, any person who pays or receives any amount exceeding a certain threshold to, or from, overseas may be required to submit documents as evidence.
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