Registering as a lender under the Financial Services Commission (FSC) takes around six months, industry data show. Market participants say the process needs to be shortened, arguing that activating the regulated lending sector is essential to minimizing illegal private lending.
According to the financial industry on the 12th, it takes roughly six months from the submission of a registration application to the Financial Supervisory Service (FSS) to the issuance of a registration certificate for a lender operating under FSC registration.
Lenders operate under a registration system, but the process takes time because it involves fact-checking with relevant agencies and assessing whether applicants meet requirements such as capital adequacy and social credit standards. The capital requirement for FSC-registered lenders is 3 billion... 300 million won or more, the same as for lenders registered with local governments. However, FSC-registered lenders are barred from running side businesses such as gambling or entertainment establishments, and their major shareholders must have a clean record of credit conduct for the past five years. As a result, extensive documentation is required for registration.
Still, the lending industry complains that the regulator's review period is excessively long. "It is a problem that applicants have to wait six months even under a registration system," an industry official said. "The review period itself is too long."
Newly established firms say they face not only business uncertainty but also considerable financial burdens. "At the application stage, we essentially have to complete preparations such as leasing office space and hiring staff," said the chief executive of one FSC-registered lender. "The longer the review takes, the more fixed costs such as rent and wages pile up."
The delay is clearly longer than for lenders registered with local governments. Lender registration is divided between FSC registration and local government registration, depending on factors such as asset size and business territory. Under the statutory forms for lender registration, local governments must notify applicants of the registration decision within 14 days of application. "Registration decisions are made within 14 days of application," said a lending official at one local government. By contrast, no separate processing deadline is stipulated for FSC-registered lenders.
The FSS's staff shortage is another factor complicating the situation. The FSS team in charge of registration and inspection of FSC-registered lenders is known to consist of about 20 people. The number of FSC-registered lenders currently stands at 970, meaning staff resources are far from sufficient to manage them. "Many lenders file applications at the individual level rather than through organized channels, so we often have to request supplementary materials due to incomplete documents, which further extends the timeline," a regulatory official said.
Industry participants argue that illegal private lending cannot be eradicated through crackdowns and punishment alone, and that simplifying registration procedures is necessary because only an active regulated lending sector can reduce such activity. The Office for Government Policy Coordination has launched a task force to eradicate illegal private lending and is pursuing a government-wide response, but the number of illegal private lending damage reports received by the FSS last year reached 17,538, up more than 27 percent from 13,751 the previous year. This is why observers say expanding access to the lending industry and offering vulnerable borrowers more legal options could help reduce illegal loan shark damage to some extent.
Some in the industry suggest that outsourcing the registration review process to the Consumer Loan Finance Association of Korea could serve as an alternative. "Lenders are already required to go through the association's membership procedure before registration," an industry official said. "Since this is a document review, transferring review authority to the Consumer Loan Finance Association could also be considered."
