What is the e-commerce `clearing`? The FSC vs. BOK conflict

The conflict between the Financial Services Commission and the Bank of Korea over the revised bill of the Electronic Financial Transactions Act (Electric Money Act) is deepening.

The two organizations have been confronting since last year over whether the amendment to the Jeongeum Act violates the inherent functions of the BOK, but recently, whether the amendment is a’Big Brother’ bill or a bill that benefits consumers has emerged as a key issue.

According to the National Assembly’s Agenda Information System on the 21st, a proposal for amendment to the Electric Money Act, initiated by Representative Yoon Gwan-seok of the Democratic Party, who is the chairman of the political affairs committee, was submitted to the Political Affairs Committee on the 17th.

The revised bill contains comprehensive contents that promote digital financial innovation and competition by facilitating the advancement of the financial industry such as big tech (large information and communications company) and fintech, while maintaining management, supervision, and user protection systems for them.

Part of the conflict between the FSC and the BOK is the institutionalization of the e-payment and transaction office industry, the mandatory external clearing of big tech internal transactions, and the institutionalization of open banking.

Liquidation means determining the amount to be exchanged with each other by calculating the relationship between bonds and debts arising from transactions. It can be said that it is an intermediate stage between’payment’, which directs the transfer of funds, and’payment,’ in which financial companies actually exchange funds.

For example, let’s say that on a specific date, three customers of Bank A remitted a total of KRW 1 million to customers of Bank B, and two customers of Bank B remitted a total of KRW 500,000 to customers of Bank A. After going through the liquidation process, the two banks only have to exchange 500,000 won by paying for a day without having to exchange money many times.

Currently, the KFTC is carrying out the liquidation work. When the KFTC relays payment orders through a micropayment system (community financial network) and determines the difference between financial institutions, the BOK will make the final payment through a large payment system (a checking account opened by each financial institution). It is a structure to do.

◇ “Payment and settlement system is a unique function of the BOK” vs. “Government-Central Bank should cooperate”

The amendment to the Electric Money Act contains the contents of institutionalizing the electronic payment and settlement industry and granting permission, supervision, and sanctions to electronic payment transaction settlement agencies to the Financial Services Commission. The KFTC is deemed to have obtained permission.

The BOK said, “The fact that the Financial Services Commission designates and manages the KFTC as an electronic payment transaction clearing institution means that the supervisory authority controls the operation and management of the payment and settlement system, which is the central bank’s unique function. “It is to deny itself,” he strongly rebelled.

It is explained that the Bank of Korea Act stipulates that even for payment and settlement systems operated by other institutions, the Bank of Korea may request the relevant operating institution or supervisory authority to improve operational standards or to submit data.

The BOK said that it is difficult to artificially separate the liquidation duties based on the central bank’s settlement risk management from the payment and settlement system, so if the amendment is passed, a business conflict between the BOK and the Financial Services Commission is inevitable, and the security of the payment and settlement system may be compromised. Points out.

On the other hand, the Financial Services Commission sees that the amendment does not violate the authority of the BOK, and sanctions are necessary to secure legal responsibility for public functions.

Lee Yong-jun, senior expert member of the National Assembly’s Political Affairs Committee, said in a review report of the revised bill, “The Financial Services Commission is a core infrastructure of the financial market that requires organic cooperation between the government, central bank, financial settlement agency, operating institutions, and participating institutions,” “As the proportion of non-banking institutions such as Big Tech continues to increase, cooperation between the government and the central bank is more important for the stable management of the payment and settlement system,” he explained.

In addition, as the competent authority, the Financial Services Commission has already inspected and supervised the Financial Settlement Agency, a non-profit institution under the Civil Law, and has the same level of sanction authority for the Korea Exchange and Securities and Settlement System, which operates the securities settlement system. .

The Financial Services Commission also stated that the additional provisions of the amendment included a statement that’the BOK, as a settlement agency, shall exclude from reporting, data submission, inspection, etc.’ Discuss.

However, the BOK said, “Basically, it will give the KFTC jurisdiction over the KFTC industry and delegate only some monitoring tasks to the KFTC. The FSC can still exercise strong supervisory authority over the KFTC.”

◇ “Big Brother” vs. “Consumer Protection”

The Financial Services Commission and the BOK are expressing contradictory views over the amendment that the revised bill requires that Big Tech’s internal transactions go through the liquidation of external electronic payment transactions.

Internal transaction refers to transactions made to other user accounts within the institution, not from one institution such as Naver Pay or Kakao Pay to an external bank.

Kakao Pay user A sends it to another Kakao Pay user B through the congratulations sending function.

The purpose of external liquidation is that it is necessary to keep records of transactions through an electronic payment transaction institution in order to transparently manage such internal transactions and to properly find the owner of the deposit when necessary, such as in case of institutional bankruptcy.

The revised bill contains provisions that require users to deposit or trust users’ deposits externally, and to first repay users in case of bankruptcy, and the Financial Services Commission explains that external liquidation is necessary for this to work effectively.

According to the Financial Services Commission, as of the third quarter of last year, more than 14 million simple payments and remittances were made a day through the three Big Tech companies (Naver Financial, Kakao Pay, and Toss), of which 66% or about 9.3 million were internal transactions.

The Financial Services Commission said, “It is the best way to protect consumers while not hindering financial innovation, rather than applying bank-level regulations to Big Tech.”

However, the BOK points out that “if the amendment is passed, the Financial Services Commission will collect all transaction information of big tech companies such as Naver through the KFTC without any restrictions.”

According to the amendment, the Financial Services Commission may request the submission of data “if it is deemed necessary for user protection or sound transaction order.”

In addition, it is unprecedented in any government in the world to include transactions that are terminated by internal accounting processing of big-tech companies as liquidation targets, and when it comes to user protection in case of bankruptcy, other systems can be used without touching the payment system. It is a position that it can be built.

In response, the Financial Services Commission explains that the government does not always have access to the KFTC’s information without restrictions, and that a number of transaction information, such as interbank transactions, is still going through KFTC as needed.

In a meeting with reporters on the 19th, Finance Commissioner Eun Seong-soo said, “(The Big Brother Act) is an excessive exaggeration.” “Would you like to look at CCTV every day?”

It is reported that the Financial Services Commission plans to prepare sub-regulations in the direction of requesting data submission when the bill is passed, when Big Tech goes bankrupt or when incidents or accidents such as fraudulent accounting occur.

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