Korea's big tech firms face new regulations over growing market dominance and rapid business expansion
Updated: 2021-09-16 07:10:15 KST
Shares of South Korean platform giants Kakao and Naver have been down session after session.
In the past six trading days, Kakao stock has fallen 20.5 percent while Naver stock is off by 9.9 percent.
In terms of market cap, the two have lost a total of about 20 billion U.S. dollars in the last week on selling by foreign investors and institutions.
The sell-off came after the country announced plans to more tightly regulate the sale of financial products online.
Last Tuesday, the country's financial regulators made it clear that fintech platforms like Kakao Pay and Naver Financial recommending financial products goes against the Financial Consumer Protection Act which took effect in March.
This is because under the new rule, using online platforms to recommend financial products like mutual funds and insurance is considered a brokerage activity and not just a form of advertisement.
And so, from September 25th, Kakao Pay, Naver Financial and other fintech platforms will not be allowed to compare and recommend financial products to their users unless they register and get a license or permission from regulators.
Several lawmakers have also promised to take action against the online platform giants due to their growing market dominance and rapid business expansion.
Policymakers have accused them of abusing their dominant positions in the market, hurting consumers and their contractors.
Several bills aimed at stopping such practices are awaiting review at the National Assembly, which if passed, will lead to even stricter regulations on big tech.
Despite the growing pressure on the companies, shares of Korea's top two platform operators are expected to recover over time.
"Since Kakao has taken a step back following its Tuesday announcement to support small businesses, its shares will enter a calm phase. Naver, which is facing the same regulations as Kakao, will also see its shares recover."
Following a meeting with major affiliates on Tuesday, Kakao has decided to set up a fund, worth 250 million U.S. dollars, to support small businesses on its platform over the next five years.
The company will also turn it's investment wing, K Cube Holdings, into a social enterprise to fund key programs such as education and climate change.
The announcement of this so called "co-existence plan" is seen as a move by Kakao to appease regulators, regain investor confidence and thereby prevent a further decline in its share price.
Min Suk-hyen, Arirang News.