FSC unveils plans to improve P2P financing regulations

South Korea’s Financial Services Commission (FSC) has decided to raise the investment limit for individual investors in online investment-linked financing, or peer-to-peer (P2P) financing, from 5 million won ($3,740) to 30 million won when their investments are made in sectors with high project safety like social overhead capital (SOC).

During a meeting with the P2P industry representatives on Wednesday, the FSC also relaxed regulations on financial institutions, such as savings banks, investing in P2P business rights, to ensure smooth funding.

The FSC implemented the P2P Financing Act in August 2020 to promote mid-interest rate loan brokerage for medium to low credit borrowers through P2P financing and to discover new lending markets for small and medium-sized enterprises.

However, the P2P industry has faced difficulties due to the recent downturn in the real estate market, leading to increased delinquency rates and challenges in attracting investors.

The loan balance of the top five P2P companies fell by about 23 percent from 818.8 billion won at the end of December 2022 to 632. 2 billion won at the end of 2023. Some major companies had delinquency rates of 8 to 9 percent at the end of 2023, compared to the banking sector’s rate of 0.4 percent.

The FSC’s move is aimed at expanding the positive effects of P2P financing amidst a challenging business environment.

“Our innovative financial service system will allow for the comparison and recommendation of P2P-linked investment products on financial product comparison platforms and enable reservations for linked investment products based on pre-set investment conditions within the legal boundaries,” said an FSC official.

Financial institutions such as savings banks are currently allowed to make P2P-linked investments under the P2P Financing Act, but actual investment barriers are high due to the need to comply with the respective sector’s laws before executing linked investments.

The FSC plans to designate P2P-linked investments as an innovative financial service to relieve regulatory burdens on financial institution-linked investments and expand the investor base for P2P financing. This move is anticipated to ease the financial strains in the P2P industry.

Furthermore, the investment limit for individual investors in SOC projects under the Private Investment Act will be increased from 5 million won to a maximum of 30 million won. A FSC official said that this will expand stable investment income opportunities for investors and solve financing issues for SOC project operators.