[EXCLUSIVE] It takes about six months to register with financial authorities and operate as a licensed lending firm in South Korea. Despite being a registration system rather than a licensing system, the long review period is creating significant business uncertainty. Industry observers argue the registration process should be shortened as much as possible, since revitalizing the regulated lending industry is key to minimizing illegal private lending.
According to the financial industry on Tuesday, it takes approximately six months from the time a lending firm submits a registration application to the Financial Supervisory Service (FSS) to receive a registration certificate for operating as a Financial Services Commission (FSC)-registered lender.
The FSS explained that although lending firms operate under a registration system, time is required to verify compliance with legal standards — including capital requirements and social credit requirements — through fact-checking with relevant agencies. FSC-registered lenders must meet a minimum capital requirement of 300 million won, the same as local governments require. However, they are prohibited from engaging in concurrent businesses such as gambling or adult entertainment establishments, and major shareholders must have no record of disrupting credit order for the past five years. As a result, registration requires extensive documentation.
The lending industry, however, complains the review period is excessive. "Having to wait six months even under a registration system is a problem," an industry official said. "The review period itself is simply too long."
For new businesses, the financial burden of registration is considerable. "At the application stage, companies must essentially complete business preparations such as leasing offices and hiring staff," said the chief executive of one registered lending firm. "The longer the review takes, the more fixed costs like rent and wages pile up."
The registration period with financial authorities is also long compared to local governments. The lending industry operates under a dual registration system based on asset size and operating region. For example, firms operating within a single city or province only need to register with the local government, while those operating in two or more regions must register with financial authorities. According to the statutory registration form for lending firms, each local government must notify applicants of the registration decision within 14 days of application. "The registration decision is made within 14 days of application," a local government official said.
Staff shortages at the FSS are part of the problem. The FSS is known to have around 20 personnel handling registration and inspection duties for FSC-registered lending firms. With the number of FSC-registered lending firms approaching 970, the workforce managing them is woefully insufficient. "Many lending firms apply for registration individually, so delays often occur as we request supplementary materials due to incomplete documentation," a financial authority official said.
The industry argues that registration procedures should be simplified, as illegal private lending cannot be eradicated through crackdowns and punishment alone, and can only be reduced by revitalizing the lending industry. In fact, as outstanding loans and users of licensed lending firms decline, the use of illegal private loans has increased. Korea's lending industry had outstanding loans of 15.87 trillion won and 989,000 users at the end of 2022, but these figures fell to 12.45 trillion won and 717,000 users by the end of June last year.
While some customers leaving the lending industry have shifted to policy financing products, a significant number are believed to have turned to illegal private loans. The number of illegal private lending damage reports received by the FSS rose approximately 27.5%, from 13,751 cases in 2023 to 17,538 cases last year.
Some suggest that delegating registration reviews to the Consumer Loan Finance Association of Korea (CLFA) could be an alternative. "Lending firms must go through the CLFA membership process before registration," an industry official said. "Since it is a document-based review, transferring review authority to the CLFA could be worth considering."
