South Korea’s parliament on Oct. 31 passed a new law that is expected to brush off legal gray areas for peer-to-peer lenders here once it goes into effect. The separate bill, loosely translated as “Act on Online Investment-Linked Financing,” will be effective nine months after Cabinet approval.This would be the first law in the world solely for players dedicated to marketplace lending.
Under the law, the minimum capital is set at 500 million won ($429,600) for marketplace lenders to gain a license. P2P lenders will also be forced to draw a line between funds raised on P2P lending platforms and their working capital.The law will also allow securities brokerage houses, private equity funds, private lenders, as well as P2P lenders themselves, to invest in marketplace loans, which is currently open to retail investors and institutional investors. The bill will take the place of the temporary legal basis for marketplace lenders in the form of a regulatory guideline.The news came over two years after the bill was drafted in July 2017 by the ruling Democratic Party Rep. Min Byung-doo. Industry players — mostly startups — hailed the latest development, calling it “the first case for innovative industry to overcome regulatory barriers by creating a law” in the nation where startups are often met with heavy and fuzzy regulations, as seen in a high-profile indictment of van-hailing service startup Tada.“Startups here have been waiting for the rainfall in a drought,” said Park Seong-ho, secretary general of Korea Internet Corporations Association. “The passage of the law is the result of a concerted effort by the government, the parliament and corporations, which could serve as an exemplary case for policymaking for startups and regulators in areas not limited to financial technologies.”Seoul-based P2P lender Lendit’s CEO Kim Sung-joon said the new law “will become a stepping-stone for consumer protection and industry development.” Korea is home to at least 50 startups devoted to marketplace lending, which are members of either Korea P2P Finance Association or Marketplace Lending Forum.