Korea to embrace ‘failure’ in fintech investment
Financial companies will be able to avoid inspections and penalties for failed investments in fintech firms, according to new guidelines announced by the nation’s top financial regulator, Wednesday.
The guidelines also allow them to acquire stakes in information and communication technology (ICT) companies specializing in artificial intelligence, big data and the internet of things.
The Financial Services Commission (FSC) said it announced the deregulatory measures to boost the country’s investments into fintech.
“Unless financial firm employees investing in fintech firms cause losses to their companies by gross negligence or on purpose, we will mitigate punishment or exempt them from penalties,” FSC Electronic Finance Division head Lee Han-jin told reporters.
Although a rule has existed for such employees exempting them from punishment for their failed investments, it was unclear whether it could be applied to fintech.
Financial firms have therefore been reluctant to invest in fintech, wary of possible failure.
“Banks have tended to be reluctant to invest in early stage fintech startups which could see losses,” NongHyup Bank CEO Lee Dae-hoon said during the NH Digital Challenge+ Demo Day event, Aug. 28.
In order for financial firms to cope with the trend of digital transformation, the FSC also decided to allow them to hold stakes in diverse ICT companies.
So far, they have been allowed to acquire shares in firms that are active in businesses closely related to finance.
Fintech startups have been in a gray zone, because they have been considered to be more like nonfinancial companies.
Financial firms have therefore had no choice but to discover and support promising startups with their accelerator programs.
With the new guidelines, however, banks, insurers, brokerages and financial services holding firms will be able to buy stakes in “companies that are expected to contribute to the financial industry and customers by using digital technology.”
The measure comes after Prime Minister Lee Nak-yon said in November 2018 that the government would move to give local financial companies more authority to define and identify fintech for equity investments and acquisition, as long as the targets were able to help them innovate and expand.
The FSC said it will also shorten its review process for such investments into fintech firms.
“According to our previous survey of financial firms, the annual investment demand for fintech firms was estimated at 40 billion won ($33 million) to 50 billion won,” an FSC official said. “We expect the guidelines will help financial firms enhance customer convenience, and fintech firms to stably develop new technologies.”
Fintech firms and financial companies welcomed the new guidelines.
“It is a good opportunity for fintech firms to cooperate with financial companies having knowhow and expertise,” said Cho Sung-hyeon, founder of Spacewalk, a real estate technology startup that signed a memorandum of understanding with NongHyup Bank.