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FinTechs belonging to this category operate crowdfunding, crowdinvesting and crowdlending platforms on which money is raised to invest in various projects, mainly start-up companies and real estate projects.
Crowdfunding is not a defined financial service, but generally used to describe donation-based crowdfunding (the investor donates the money to the project), reward-based crowdfunding (the investor receives an often symbolic consideration for his investment), equity-based crowdfunding (crowdinvesting: the investor participates in the profits of the financed project or acquires shares or debt instruments) or lending-based crowdfunding (crowdlending: the investor is reimbursed at the end of the project with or without interest).
Introduction
Attitude of the country towards crowdfunding, crowdinvesting and crowdlending platforms
Financial authorities institutionalized investment-type crowdfunding following the amendment of the FISCMA in 2016 and announced measures to promote crowdfunding platforms by providing support measures for companies and actively encouraging investment. In addition, in 2020, financial authorities also announced their plans to promote the development of crowdfunding platforms by increasing funding for corporations, strengthening investment incentives for investors, and expanding support at the policy level.
Legal affairs
Obligations and requirements to provide crowdfunding, crowdinvesting and crowdlending platforms described above
Investment-type crowdfunding is regulated as a crowdfunding brokerage service under the FISCMA, and in order to provide crowdfunding brokerage services, the service provider shall meet the following requirements and register itself: (i) it shall be a stock company under the Commercial Act or shall have established a branch office or any other business office necessary as a foreign crowdfunding broker, (ii) it shall maintain a minimum equity capital of KRW 500 million, (iii) its business plan has to be feasible and sound, (iv) it shall have personnel, electricity system, and other physical facilities sufficient to protect its investors and conduct the business in which it intends to engage; (iv) requirements regarding officers and major shareholders need to be met, (v) it shall have good financial standing and social credibility, and (vi) it shall have a system for preventing conflicts of interests, etc.
Lending-based crowdfunding is regulated by the Act on Online Investment-linked Financial Business and the Protection of Users. Thus, any person who intends to make loans to a designated borrower with the funds invested by investors with the intent to provide the funds to such borrower through an online platform and lending the right to receive the principal of such peer-to-peer loans and interest thereon to the investors needs to meet the following requirements and register itself: (i) it shall be a stock company under the Commercial Act, (ii) it shall maintain a minimum equity capital of KRW 500 million depending on the amount of peer-to-peer loan, (iii) it shall have personnel, electricity system, and other physical facilities sufficient to protect its investors and conduct the business in which it intends to engage, (iv) its business plan has to be feasible and sound, (v) it shall have an appropriate internal control system, (vi) requirements regarding officers and major shareholders need to be met, etc.
Additional comments regarding the legal situation for crowdfunding, crowdinvesting and crowdlending platforms or what FinTech’s must be aware of in this business area
Under the FISCMA, a person operating as a crowdfunding broker shall comply with relevant provisions under the FISCMA, such as announcing conditions to the issuance of securities, f