Innovation in the Korean financial services market: The regulatory sandbox
GR Japan, Interel Global Partnership’s Japan partner, is proud to have launched GR Korea, a new specialist Korean government relations firm in Seoul in January this year. Analysts Juyun Moon and Selena Falcone have shared an article on Korea’s latest policies to establish the country as a regional hub for Fintech and financial innovation.
The Fintech sector in South Korea is rapidly expanding, and the government’s recent implementation of its “regulatory sandbox” has opened up new opportunities and incentives for innovation. It came into effect on 1 April under the Special Act on Financial Innovation Support.
The regulatory sandbox is a framework designed to foster innovation in new business sectors, in particular the financial sector, through allowing Fintech startups and other companies to experiment in a controlled environment. Certain regulations can be suspended during the testing period. The regulatory sandbox will last for two years with the possibility of a one-time extension if a company’s applications are approved.
One important aspect of the regulatory sandbox is the protection of consumers from potential financial harm. Companies that participate in the regulatory sandbox must detail their plans for consumer protection and risk management, which must be approved by the Financial Services Commission (FSC).
The FSC has so far received 105 proposals from 88 companies, mainly Fintech startups and other financial firms. The FSC will continue reviewing applications through the end of June before accepting the next round of applications. It aims to complete evaluation by the end of the year. As of mid-May, 26 services have been approved for testing in the regulatory sandbox.
Projects approved include a 24-hour AI-based insurance consultation service, a QR-code-based P2P money transfer service, and a smartphone payment system that does not require a payment terminal.
The scheme is expected to benefit companies, consumers, and government. For companies, a more flexible regulatory environment is expected to contribute to growth and innovation. Consumers will benefit from greater choice, while innovation will create much-needed jobs, especially for the young and highly-skilled.
The regulatory sandbox is part of a larger drive to support Fintech in Korea. The FSC and the Financial Supervisory Service (FSS) held “Korea Fintech Week” in May, to showcase Fintech innovation and to provide start-ups and investors with an opportunity to invest in either Korea or abroad. FSC Chair Choi Jong-gu at the event unveiled the government’s plan to support financial innovation, including comprehensive support for fintech startups, regulatory reform, and measures to maintain a balance between innovation and inclusiveness.