One out of four registered lend companies nationwide was found to use a shared office as its business sites. As illegal operations have increased in which operators lease relatively inexpensive shared offices to easily obtain a lend business registration certificate and then pass it on to illegal private moneylenders, financial authorities have moved to tighten regulations.
According to financial authorities on the 5th, as of on the 15th of last month, 23.6% (1,763) of the 7,478 registered lend companies nationwide had shared offices as fixed business sites. The concentration among locally registered lend companies was particularly notable. While 26.1% (1,685) of the 6,468 locally registered lend companies listed shared offices as their address, only 7.7% (78) of the 1,010 lend (brokerage) companies registered with the Financial Services Commission used shared offices, a stark difference.
This tilt toward shared offices among locally registered lend companies is the result of loose registration requirements and low rental expense. In some shared offices, the six-month rent is around 150,000 won. Also, registration with the Financial Services Commission (FSC) requires stringent qualification checks—such as a ban on concurrently operating entertainment bars—and extensive documentation, taking about six months to review, whereas local registration can be issued in two weeks if the minimum requirements are met, making registration relatively easy.
Illegal private moneylenders exploited this blind spot by purchasing or receiving transfers of lend business registration certificates, posing as legitimate companies to recruit customers and continuing illegal transactions by charging usurious interest exceeding the legal maximum rate (20% per year). In practice, when the responsible supervisor conducted on-site inspections, many lend companies registered to shared offices reportedly did not keep their certificates on site or had no resident staff with the doors closed, effectively ghost companies.
The problem is that even if such borrowing of names or ghost operations is suspected, crackdowns are difficult under the current system. The supervisory framework for lend businesses is split between the Financial Supervisory Service and local governments depending on the registration method, and in the case of local governments, a small number of staff are in charge of hundreds of companies, making constant inspections difficult. Given that neither body has the authority to conduct compulsory investigations, it is not easy to uncover borrowed names or the presence of real investors.
Financial authorities are cautious about shifting to a full licensing system, citing concerns about side effects such as a credit crunch among low-income groups. The lend industry started in 2002 as a low-regulation "registration system" to bring it into the formal sector. Since then, authorities have gradually raised standards by introducing Financial Services Commission registration and strengthening capital requirements, so an immediate switch to licensing could shrink the legitimate lending supply chain for low-credit borrowers, they said.
In response, the Financial Services Commission (FSC) chose a plan to "block shared offices." On the 2nd, through a notice of a draft enforcement decree revision, the FSC strengthened lend business registration requirements to prohibit the use of shared offices or dwellings as fixed business sites.
Under the revision, fixed business sites eligible for lend business registration must be clearly partitioned from other establishments and have a separate entrance that can be accessed directly from the outside or a common passage. The aim is to ensure a minimum physical space and block the entry of illegal private lending through the transfer of registration certificates.
This revision also reflects the views of local governments that have experienced problems with shared-office lend companies in the field and have called on the government to improve the system. Inside and outside the authorities and local governments, there are expectations that the tougher fixed business site standards will compensate for administrative limits in crackdowns and serve as an opportunity to preemptively block the root causes of potential illegal private lending damage.