Just 19 of 194 registered electronic financial businesses maintain both liability insurance and reserves; Hecto Financial, Naver Financial, Viva Republica, Kakao Pay and Zimoney Trans are the only five with upfront compensation systems

[Image generated with ChatGPT]
[Image generated with ChatGPT]

Only about 10 percent of registered electronic financial businesses have fulfilled both consumer-protection requirements — liability insurance and reserve funds — designed to cover losses from hacking and other financial incidents, data submitted to a lawmaker showed.

Democratic Party of Korea lawmaker Kang Jun-hyeon of the National Assembly's Political Affairs Committee obtained the data from the Financial Supervisory Service. It showed that just 19 of 194 registered electronic financial businesses had both liability insurance and reserve funds in place as of the end of July.

Of the remaining firms, 117 held only liability insurance while 47 had set aside only reserve funds.

Under the Electronic Financial Transactions Act, fintech companies and other electronic financial businesses must either take out liability insurance or maintain reserves above the legally required minimum to ensure they can compensate consumers in the event of a financial incident. Meeting both requirements is considered a sign of stronger commitment to user protection.

Eleven of the 194 firms had met neither requirement, up from five the previous year.

Regulators found that some firms had registered as electronic financial businesses but had not yet launched services and therefore had not taken out liability insurance, while others had failed to meet the requirements due to a lack of understanding of the standards. Authorities did not impose separate sanctions on non-compliant firms but did require them to submit compliance plans, including obtaining additional liability insurance.

Only five of the 194 firms — Hecto Financial, Naver Financial, Viva Republica, Kakao Pay and Zimoney Trans — had adopted an upfront compensation system for fraudulent payments resulting from financial incidents. Under such a system, consumers are reimbursed proactively; the remaining firms assess whether a user acted with intent or gross negligence before deciding whether to pay out.

"The fintech industry is growing rapidly, but basic safeguards to compensate users in the event of a financial incident must be in place," Kang said. "We need to strengthen oversight of firms that fail to meet legal standards such as liability insurance and reserve requirements, and review ways to improve the system so that victims are compensated when incidents occur."


hyuk@heraldcorp.com