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Regulations on P2P investment to kick off in August

Starting in August, peer-to-peer lending products using cryptocurrency will be banned. Currently, peer-to-peer lending companies can issue loans in won against cryptocurrency if they secured a lending license. But once the regulation is implemented, issuing loans in won against cryptocurrency will be banned. This could cause decentralized finance services to be banned. #Reasons for the restriction The Financial Services Commission and Financial Supervisory Service introduced a finance supervision proposal on investment on March 30. The purpose of the proposal is to protect investors. The proposal includes lowering the peer-to-peer investment limit to 30 million won ($27,000) from 50 million won in response to rising concerns about damages caused by peer-to-peer investment. High-risk finance products, which include cryptocurrency, are also banned in the name of investor protection. #Fate of the decentralized finance Decentralized finance companies that lend won against cryptocurrency circumvented the legal risks by arguing they secured a lending license. Cryptocurrency operator Delio is one of such firm. Last July, it secured a license to be registered as a lending company after establishing Deli funding. But this way of operating the business will likely become illegal. “The act of collecting investment will be banned,” said Kim Yong-tae from Financial Supervisory Service. “A company loaning out legal tender against its own cryptocurrency is controversial, but is liable to be illegal.” But borrowing cryptocurrency against cryptocurrency security is not subject to regulatory supervision under the upcoming peer-to-peer regulation. “That is an issue that needs to be evaluated under different laws, like the capital market law,” said Kim. In regards to the issue, the head of Delio said, “Delio’s business involves lending cryptocurrency against the company-owned cryptocurrency security, and therefore, is not related to the peer-to-peer regulation.” In October 2017, Korea Funding, a peer-to-peer operator, offered a bitcoin funding product that gives 12 percent in interest using bitcoin as security.

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