Case Studies
Songdo-young, Representative Lawyer, On-site Discussion to Support Virtual Convergence Industries through Regulatory Innovation
Law firm Veat’s Songdo-young representative lawyer attended the ‘Consultation Meeting for Supporting Virtual Convergence Industries through Regulatory Innovation’ held with the Ministry of Science and ICT and private experts, and exchanged opinions on presentations regarding various institutional difficulties experienced while pursuing business in the industrial sector and regulatory improvements through provisional standards. This consultation meeting is a follow-up measure for ‘Creating an Innovative Virtual Convergence Industry Ecosystem’ announced at the ‘Korea Metaverse Festival’ on the 17th, and was prepared to discuss supporting virtual convergence industries through regulatory innovation. Virtual convergence world (metaverse) companies operating in various industrial sectors such as medical care, education, and manufacturing also attended this consultation meeting, presented institutional difficulties experienced in the business promotion process in each industrial sector, and requested regulatory improvements through provisional standards. In addition, the participants in the consultation meeting emphasized the need for discovering and promoting suitable leading cases for the application of provisional standards and cooperation between relevant ministries, and shared various opinions on the importance of spreading the provisional standard system through successful cases. Law firm Veat’s Songdo-young representative lawyer has participated since the early stages of the bill for the “Act on Promotion of Virtual Convergence Industry,” which was enacted following the release of the “Virtual Convergence Economic Development Strategy” in 2020. He has also been appointed as a member of the Metaverse Self-Regulatory Committee to establish the self-regulatory system for the metaverse industry, and has been active as a leader in regulatory innovation in areas such as ICT convergence, metaverse, AR/VR, smart cities, and mobility regulatory sandbox. He has been selected for the ‘Leading Lawyers 2024’ TMT (Technology, Media & Telecommunications) sector, recognized for his deep expertise in key areas such as personal information, games & esports, blockchain, and e-commerce, which have expanded to include AI in the advancement of the 4th Industrial Revolution. Law firm Veat is positioned as a leader in various emerging industries and regulatory innovation areas such as virtual convergence world (metaverse), ICT regulatory sandbox, mobility regulation, and smart cities, and provides comprehensive legal advice centered on reviewing metaverse-related business models, protecting intellectual property rights, and resolving personal information and security issues. Thank you. Law firm Veat
Smooth development progress, starting from setting clauses in the product development contract.
Law firm Veat received a request for legal consultation from Company A, an e-commerce retailer ("Client"), regarding the selection of external contractors for its product development and the drafting of contracts with those companies. The Client wished for the product development contract to be concluded on terms favorable to them, and to ensure that rights for the completed product and protection of confidential information would be strictly maintained. Law firm Veat consulted with the Client and meticulously reviewed and drafted each clause of the contract to faithfully reflect provisions suitable for the Client, providing a contract that accurately reflected the Client’s needs. Key Provisions that Must Be Included in a Product Development Contract To protect the Client’s interests and ensure smooth development, we recommend drafting a product development contract. Especially for product development businesses that rely heavily on technology, know-how, and ideas, such as e-commerce or IT startups, it is important to proactively prepare for various legal issues. Firstly, paying appropriate amounts at suitable times during the development project is a crucial element for maintaining project stability. Specifying a payment schedule clause in the contract is recommended, allowing the Client to manage their budget according to the project timeline. Furthermore, it is necessary to specify a inspection procedure in the contract that allows the Client to verify the quality of the final product after completion. Detailed descriptions of clear inspection criteria and procedures should be included to ensure that the deliverables meet initial expectations. Through these provisions, responsibility can be clearly assigned if problems arise with the product, and legal responsibility can be pursued. Ownership of intellectual property for the product created through outsourcing is also a significant issue. This is a provision that should be included to maintain the product’s originality and secure exclusive usage rights. Security regulations for information and deliverables provided during the product development process can prevent business strategies and know-how from being leaked externally. It is important to ensure that the contractor keeps information gained during the project confidential and clearly defines legal responsibilities for any violations. Finally, we recommend adding a competitive restriction clause that prevents the outsourced contractor from developing or selling similar products to other companies. This provision prevents the contractor from developing or selling the same type of product to other companies, allowing the company to protect its exclusive rights and maintain its competitive advantage. Startup Specialized Law firm Veat thoroughly reviews potential risk factors that may arise when the Client collaborates with external parties to develop new products or technologies and helps incorporate them into the contract to prevent them. Law firm Veat, with a high level of understanding of e-commerce, IT, and startup areas, assists in drafting contracts that align with the Client’s business objectives and circumstances. If you require legal advice regarding outsourcing contracts, please contact Law firm Veat. Thank you. Sincerely, Law firm Veat
Law firm Veat, receives Chairman's Award from the Korea Federation of Small Business: In recognition of contributions to the growth of startups and small businesses.
Law firm Veat was awarded the Chairman's Award from the Korea Federation of Small Business (KFSB) in recognition of its contribution to the development of startups and small businesses. The Korea Federation of Small Business (KFSB) (Chairman Kim Gi-moon) is an economic organization representing over 8 million small business members and is conducting a wide range of support activities for the growth and profit of startups and small businesses. This award demonstrates the significant contribution of Law firm Veat in enabling business success through legal support for startups and small businesses. Law firm Veat is a law firm with expertise in IT, blockchain, personal information, startup investment and M&A, and has provided specialized legal advice to numerous startups and small businesses. Law firm Veat’s advice is known for being practical and efficient, and this Chairman's Award is the result of Law firm Veat’s practical advice contributing significantly to the business growth of small businesses. In particular, Senior Foreign Attorney Song Woo-seok of Law firm Veat has continued active activities, such as conducting a virtual asset regulation seminar for the KFSB’s blockchain startup members and providing practical legal advice to help their business growth. Attorney Song Woo-seok previously served as a senior advisor at Binance, a global virtual asset exchange, and is supporting related companies to maintain stability and competitiveness in the changing regulatory environment, leveraging his global experience and expertise gained through this role. This Chairman's Award from the Korea Federation of Small Business is a meaningful result recognizing the efforts of Law firm Veat as a partner to startups and small businesses. Veat deeply empathizes with the legal issues inevitably encountered by startups and small businesses during their growth process, and has supported stable business operations by providing advice tailored to the growth stage and situation of each company. We will continue to do our best to be a reliable partner helping the growth of startups and small businesses through systematic and practical legal support. Thank you. Law firm Veat
Introduction to the Importance of Personal Information and Personal Credit Information Protection, and Information Protection Measures Examined Through the Toss Case
Recently, the Financial Supervisory Service imposed a large-scale penalty and fine on Vibarepublic, the operator of the financial platform ‘Toss,’ demonstrating the seriousness of violations of corporate obligations regarding personal and credit information management. The main violations of this sanction are as follows. Firstly, Toss illegally combined external electronic receipt data and its own card transaction information without going through a data specialized agency, using it without the consent of the information subject, thereby illegally using personal credit information through the unfair combination of information sets. Additionally, it misrepresented non-essential information that customers could selectively consent to as a mandatory consent item, forcing consent and operating the personal information provision and utilization consent procedure unfairly. Secondly, regarding the safe protection of the credit information computer system, it violated legal obligations by failing to back up access logs separately, excessively granting access permissions, and inadequately operating administrative security measures. Additionally, it was pointed out that it neglected to report concurrent business, failing to fulfill its reporting obligations. Furthermore, regarding the insurance inquiry service, it was also a violation of unfair collection and utilization of personal credit information to illegally collect sensitive information of customers who did not consent and provide numerous insurance inquiry services. Along with this, the lack of control over the insurance service program changes hampered the transparency and security of the service's operation, and essential security procedures were omitted in the information processing system construction project, failing to comply with related legal obligations. These violations underscore the importance of personal and credit information protection. As the legal responsibility of corporations regarding personal information protection is increasingly emphasized, Law firm Veat’s personal information protection lawyers have explained the key violations of this case one by one, along with the information protection measures that companies must know. Q1. One of the key issues in this case was the illegal use of personal credit information through unfair combination of information sets. What are your thoughts on this? In this case, the consent procedures in the combination and use of personal information and the data combination method were problematic. Toss used external electronic receipt data and its own card transaction information by combining them without going through a data specialized agency, resulting in unauthorized information combination and utilization. According to Article 33 of the Credit Information Use and Protection Act (hereinafter “Credit Information Act”), personal credit information of customers must only be utilized for other purposes with the clear consent of the information subject, and according to Article 17(2) of the same Act, data specialized agency combination is mandatory. Q2. The unfair operation of personal credit information provision and utilization consent procedures was also problematic. What is the legal standard for this? Toss had instances where personal information designated as optional items in the personal information collection and utilization consent form was designated as a 'mandatory consent item.' Article 64(4) of the Credit Information Act clearly distinguishes between essential consent related to service provision and optional consent, and clearly stipulates that optional consent must inform customers that they can refuse information provision, emphasizing the importance of a consent system that guarantees the customer’s choice. Q3. The failure to back up access logs of the credit information computer system has also been pointed out. What legal obligation is this related to? Backing up access logs is an important method of safely protecting customer information from external sources. Toss did not back up access logs of the computer system where personal credit information was stored to a separate device, which violated the access log management and retention obligations stipulated in Article 19(1) and Article 16(2) of the Enforcement Decree of the Credit Information Act. Credit information companies, etc. must store personal credit information processing system access logs for more than one year and back them up to a separate storage device that is not altered to prepare for illegal access, input of information modification/damage and destruction by third parties, etc. Q4. Could you explain the legal obligation violations in the information processing system construction project? When constructing an information processing system, you must strictly comply with legal regulations. In this case, Toss did not properly implement the requirement to conduct a prior feasibility study and obtain approval from an independent organization regarding the results, and omitted essential security procedures. Q5. So, what advice does Law firm Veat provide regarding personal and credit information protection? Law firm Veat, led by partner Baek Seung-cheol and partner Jo Eun-byeol, provides legal advice in various aspects, including ISMS-P (Information Security Management System) construction and certification consulting, personal information leakage response, GDPR, HIPAA, personal information protection education, and credit information location advisory. Partner Jo Eun-byeol serves as a legal advisor to the Personal Information Protection Committee and provides legal support for strengthening the data protection system of corporations. Recognizing Jo’s outstanding contribution in the personal information protection field, she received an award for outstanding lawyer from the Personal Information Protection Committee, and as a member of the Artificial Intelligence and Legal Tech Special Committee of the Seoul Bar Association, she provides legal support so that corporations can comply with the Personal Information Protection Act and Credit Information Act while providing innovative services. Partner Baek Seung-cheol is an expert in IT and personal information protection law, holding the IT specialist lawyer qualification from the Korea Bar Association. He is particularly assisting corporations in establishing robust information security systems through ISMS-P (Information Security Management System) construction and personal information protection lectures. The Law firm Veat personal information protection team provides legal advice to ensure that corporations comply with legal requirements regarding personal and credit information and to support them in establishing a reliable information security system. Q6. Finally, what advice would you like to give to companies regarding personal information protection? It is essential for companies handling such information to proactively establish and maintain a management system that meets the legal requirements. Strengthening personal and credit information protection is now more than just regulatory compliance; it is linked to corporate trustworthiness. As legal requirements for information protection continue to strengthen, systematic response is essential. Law firm Veat provides thorough prior review and legal advice to help companies minimize legal risks and establish a stable and reliable data operation environment. We hope that through Law firm Veat’s advice, companies will be able to establish a risk-free and reliable data operation environment and enhance customer trust. Law firm Veat will continue to do its best to reflect the legal requirements for information protection and help customers comply with legal requirements. For legal advice regarding information protection systems, the Credit Information Act, and the Personal Information Protection Act, please contact Law firm Veat. Thank you. Law firm Veat
Startup investment attraction precautions, drafting an integrated shareholders' agreement between existing investors and new investors.
Law firm Veat received a request from startup A (hereinafter referred to as "the client") and drafted a unified shareholder agreement for existing and new investors. The client was in a situation where they wanted to conclude a shareholder agreement with the same content as the existing investors during the process of attracting new investment, and worried about potential conflicts of rights between existing and new investors, so they sought out Law firm Veat to incorporate the new investor as a party to the existing shareholder agreement and to revise clauses that were vaguely stated. Law firm Veat carefully reviewed the clauses of the shareholder agreement of the existing investor, and resolved the complexity of the process by drafting and concluding a unified shareholder agreement that includes all investors based on the opinions of the existing investors. Key Clauses of the Unified Shareholder Agreement The unified shareholder agreement clearly defines the rights and obligations of both existing and new investors in a single contract, minimizing conflicts between investors and maintaining a consistent equity structure. It is important to carefully review and revise the clauses of the existing agreement to ensure that the new investor’s participation as a party to the contract does not negatively impact the rights and obligations of the existing investors. This can prevent disputes that may arise during a startup’s growth process through the drafting of a unified shareholder agreement. - Incorporation of New Investor The unified shareholder agreement includes a clause to incorporate the new investor as a party. - Revision of Existing Contract Clauses Definitions of each subscription agreement and the definition of the agreement itself, the starting point and obligations stated in the existing shareholder agreement, must be comprehensively revised, and conflicts of rights and obligations between existing and new investors must be minimized. - Ensuring Consistency Between Contracts To ensure that the content of the subscription agreement and the shareholder agreement do not conflict, a unified shareholder agreement must be drafted to ensure consistency between the two contracts, and each clause must be reviewed and revised for consistency. Based on extensive experience in investment advisory, Law firm Veat has considered the equity structure of the startup and the potential conflict of rights between investors, and has conducted a detailed review of each clause of the unified shareholder agreement to maintain consistency between the clauses, and through this adjustment process, has drafted a unified shareholder agreement that satisfies both existing and new investors. Law firm Veat provides professional and systematic legal advice for stable and rapid investment attraction related to startup investment. In particular, it supports both investors and startups by providing customized legal services that consider the unique requirements of startups, and striving to provide conditions that are reasonable for both parties. Seongho Choi, Representative Attorney of Law firm Veat, has been selected for the ‘Leading Lawyers 2024’ Corporate and M&A section for his main practice areas of investment & M&A, foreign investment, venture & startup, personal information, and blockchain. In addition, Law firm Veat was selected as a finalist in four categories: Korea Law Firm of the Year, Boutique Law Firm of the Year, Managing Partner of the Year (Boutique Firm), and Korea Deal Firm of the Year, in the “ALB Korea Law Award 2024”, and ranked 5th in Bloomberg League Table for the first half of 2024 in the Korean M&A market, demonstrating its important role in the domestic IT, startup, and M&A markets. If you need legal advice related to startup investment, shareholder agreements, or subscription agreements, please contact Law firm Veat, which specializes in investment M&A. Thank you. Law firm Veat
Agreement on Resignation of CEO: Key Discussion Points
Law firm Veat received a request from bio venture company A (hereinafter referred to as "the client") and concluded an agreement through negotiations for the resignation of the CEO. The CEO's resignation can have a significant impact on the company's operations and may involve various legal issues. Law firm Veat played a pivotal role in adjusting the interests of the resigning CEO and the company to resolve this smoothly. Key Negotiated Matters Regarding CEO Resignation - Quantity and Exercise Conditions of Stock Options Stock options are a reward given to the CEO for contributing to the company’s growth. The parties negotiated the adjustment of the quantity of stock options and the setting of whether or not to exercise them after resignation. - Non-Compete Agreement This regulates the CEO from being employed by a competing company or engaging in similar business for a certain period to protect the company’s interests. Law firm Veat carefully coordinated the non-compete period and scope between the company and the CEO, preventing unnecessary disputes between both parties. - Restriction on Disposition of Holdings For startups preparing for an IPO, the disposition of shares can significantly impact the company’s value and stock price. Therefore, restrictions are placed on share dispositions before and after the IPO to maintain the company’s stability and minimize the impact of the CEO's departure on the market. Law firm Veat established restrictions on the CEO's share dispositions before and after the IPO and clarified the conditions, helping both the company and the CEO to agree fairly. - Negotiation of Penalty Payment Calculation Method If the CEO violates agreed-upon conditions such as a non-compete agreement or share disposition restrictions after resignation, legal responsibility and a penalty payment may be imposed. A reasonable calculation method was proposed to ensure that the penalty payment is not excessive or unfair, and the related conditions were analyzed and negotiated in detail to maintain a trust relationship between the company and the CEO. Changes in management, such as CEO resignation, can involve legal issues that are very important for the company's stable operation and the CEO's rights protection. Law firm Veat handles these complex matters quickly and accurately and provides legal advice for the growth and protection of venture companies and startups. Law firm Veat is a law firm specializing in legal services for venture companies and startups, and has efficiently and professionally resolved legal issues for the management of venture companies and startups based on various experiences. If you need regular legal advice regarding various corporate legal issues that may arise in venture companies, startups, etc., please contact Law firm Veat. Thank you. Law firm Veat
Checking items needed when storing and processing personal information by entrusting to the cloud.
The Ministry of Science, ICT announced policies to improve the cloud security certification system and ease regulations on network separation in the financial sector through the 17th Information and Communications Strategy Committee. This provides an opportunity to expand the use of cloud services across various industries and helps companies build more efficient and flexible IT infrastructure. Many companies are reviewing domestic and overseas cloud transitions to take advantage of the benefits of cost savings and scalability through these cloud services. Especially, if you are concerned about whether storing and processing personal information on a cloud server simply means renting a server or providing personal information to a third party, what legal obligations are related to personal information overseas transfer, and how to prepare for them, please refer to this article for answers. ◾Regarding Outsourcing When Using a Cloud Server Generally, storing and processing personal information in cloud services is considered outsourcing. This is because the cloud service provider manages the data without directly using it or delivering it to a third party, simply renting out the server. That is, responsibility for personal information processing still remains with the company using the cloud service. ◾Legal Definition Related to Personal Information Overseas Transfer Overseas transfer of personal information refers to the act of transmitting or storing personal information collected in Korea to servers or third parties located overseas. In the case of overseas cloud services, data is often stored and processed using data centers located overseas. This act falls under overseas transfer as stipulated in the “Personal Information Protection Act.” The Personal Information Protection Act generally prohibits the provision (access), processing outsourcing, or storage overseas, but also stipulates several important requirements for the possibility of overseas transfer as an exception. 1) When separate consent for overseas transfer has been obtained from the information subject in advance, 2) When there is a special provision in laws, treaties, or other international agreements regarding overseas transfer of personal information, 3) When it is necessary for the conclusion and execution of a contract with the information subject. In the case of being necessary for the conclusion and execution of a contract with the information subject, that is, when using overseas cloud services is essential for the contract, overseas transfer of personal information is possible without separate consent, but measures such as specifying items of personal information to be transferred in the personal information processing policy are necessary (Article 9, Paragraph 4, Clause 1(a)(3) of the Personal Information Protection Act). Also, even if the cloud service provider has obtained personal information protection certification or other certifications designated by the committee and has built an environment that can implement the certification, the consent of the information subject may be exempted (Article 9, Paragraph 1(a)(4) of the Personal Information Protection Act). However, separately from the exemption from consent, the cloud service usage company must verify that technical and administrative measures to prevent personal information leakage are effectively implemented, even if the cloud service provider has obtained certification. Thorough supervision is necessary. If problems arise in this process, the cloud service usage company may be held liable under the Personal Information Protection Act. The issue of overseas transfer of personal information is a complex problem involving not only technical issues but also legal and administrative responsibility. Law firm Veat has IT legal experts and personal information lawyers with extensive experience in advising on and resolving disputes related to the introduction of numerous cloud services, and provides legal advice to enable the safe and appropriate collection and storage procedures for personal information in relation to overseas transfer of personal information. If you are a company introducing cloud services, please prepare a safe data management plan with Law firm Veat. Thank you. Law firm Veat
Creating Confirmation Documents with Employees Leaving Due to Agreed Resignation!
Law firm Veat’s client, a blockchain domestic subsidiary A (hereinafter referred to as “the client”) had to retire a specific employee through a recommendation for dismissal. Law firm Veat drafted a confirmation document between the client and the employee being retired through a recommendation for dismissal (hereinafter “the relevant employee”) and provided legal advice regarding the matter, minimizing the possibility of future legal disputes for the client. Elements to Consider When Drafting a Confirmation Document with an Employee Being Retired Through a Recommendation for Dismissal ◾ Consent regarding the change of rights and obligations during retirement It is very important to review the existing contract and clearly reflect any changes. The relevant employee had entered into a virtual asset sales contract (hereinafter “the relevant contract”) with the client’s overseas subsidiary. The relevant contract stipulated that the content of the contract would be changed upon retirement before the vesting period. Law firm Veat meticulously analyzed each clause of the relevant contract, considered the client’s current situation, changed the content of the contract, and drafted a confirmation document (hereinafter “the relevant confirmation document”) stating that the relevant employee agrees with the changed contract content. In this way, Law firm Veat accurately judged the client’s current situation and, based on that, provided legal advice to minimize the possibility of future legal disputes between the client and the relevant employee. This is a result of Law firm Veat’s numerous contract reviews and legal advice experience. ◾ Prohibition of leakage and outflow of company’s trade secrets Trade secrets mean things that are not publicly known and have independent economic value (Law for Prevention of Unfair Competition and Protection of Business Secrets, Article 2, Paragraph 2). If such trade secrets leak or are disclosed externally, it could cause significant disruption to the company’s business, so attention should be paid to protecting trade secrets. In this context, Law firm Veat stipulated in the relevant confirmation document that the employee being retired through a recommendation for dismissal must not leak or disclose the company’s trade secrets even after retirement. This provision is an important preventive measure to protect the company's core assets, trade secrets, and to preemptively block potential risks that may arise after the relevant employee's retirement. ◾ Prohibition of defamation and business interference regarding the company An employee being retired through a recommendation for dismissal may have negative feelings towards the company. Therefore, when an employee is retired through a recommendation for dismissal, the retiree may disseminate false or fabricated information, defame the company, or even directly interfere with the company’s operations. It is necessary to prevent a retiree from acting against the company’s interests due to resentment. Therefore, Law firm Veat explicitly stated in the relevant confirmation document a provision prohibiting defamation and business interference regarding the company. Legal advice from Law firm Veat based on expertise and experience As stated above, through the relevant confirmation document, Law firm Veat clarified the rights and obligations between the client and the relevant employee and provided thorough legal advice to prevent potential legal disputes. Through Law firm Veat’s legal advice, the client was able to minimize legal risks and continue stable operations. In this way, Law firm Veat is also providing customized solutions to the client’s current situation regarding employee recommendation for dismissal and other personnel and labor issues, supporting the client to be free from legal disputes. If you need legal advice regarding personnel and labor issues, please contact Law firm Veat. Thank you. Law firm Veat
Law firm Veat's subcontract agreement litigation, methods of winning through response strategies
Law firm Veat represented manufacturer A Co. (hereinafter “the client”) and achieved victory in a lawsuit related to a construction contract. This case involved a payment dispute due to the lack of a written construction contract, where the construction company, the plaintiff, sued the client for the remaining construction costs and delayed damages. Construction began without a formal written contract, and a formal contract was subsequently drafted. During the construction process, a dispute arose between the client and the plaintiff regarding the method and timing of payments. The plaintiff filed a lawsuit against the client, claiming the client had failed to pay the agreed-upon amount by the construction payment deadline, and sought construction costs and delayed damages while halting construction. Law firm Veat thoroughly reviewed the key legal issues related to the construction contract in this lawsuit. It emphasized that when a construction contract is terminated before the contractor completes the work, the construction cost should be calculated based on the completed work, and the plaintiff failed to provide specific evidence to support its claim of more than a majority completion rate, despite claiming such a completion rate. In particular, it emphasized the invalidity of the plaintiff’s claim that a separate agreement regarding maintenance of completed portions existed based on the circumstances of the contract execution. The court accepted the evidence and logic submitted by Law firm Veat, rejected the plaintiff’s claim for construction costs in their entirety, and ordered the plaintiff to bear the litigation costs. Importance of Contract Execution A contract is not merely a formal document but an important legal instrument that clearly defines the rights and obligations of the parties in a legal dispute and can prepare for various situations that may arise. Especially in construction contracts, disputes are likely to arise if detailed items such as the contract period, payment timing, calculation method for completed work, and late payment penalties are not clearly defined. In other words, the contract should specifically state important contents such as the scope of work, payment terms and timing, and penalty clauses. If there is no specific provision in the contract stating whether the payment will be made in full after the completion of the work or partially based on the completed work, there is a risk of dispute. In particular, the obligations and responsibilities between the parties should be clearly stated, and in the case of construction, detailed information on how to prove the progress of work and who is responsible for it should be recorded. If a clear contract exists, legal disputes can be resolved quickly when they arise. Law firm Veat assists clients by predicting legal issues that may arise at the contract drafting stage through legal advice on the drafting and review of construction contracts, preventing unnecessary legal disputes, and minimizing the risks clients may face. If you need help with construction payment lawsuits or contract disputes, please contact Law firm Veat. Thank you. Sincerely, Law firm Veat
Point payment legal issues and revised Electronic Financial Transactions Act legal review
Law firm Veat received a request from a data-driven MedTech company A (hereinafter referred to as the "Client") to review whether the cash used in the Client's online market qualifies as a pre-paid electronic payment method under the 「Electronic Financial Transactions Act」. Law firm Veat’s e-commerce lawyers analyzed the legal status of the cash used in the Client’s online market from various perspectives. In particular, we conducted a detailed review of the obligations of issuers registered as pre-paid electronic payment methods under the revised Electronic Financial Transactions Act, as well as the limits that do not apply when exemptions are granted. First, we reviewed whether the cash used to purchase products sold by the Client falls under the case “used only by the issuer”. Also, we conducted a legal review regarding whether the services operated by each representative with different subsidiary services registered under the Client’s service structure could be recognized as separate merchants. At this time, we analyzed whether the Client’s situation met the requirements of a merchant under the Electronic Financial Transactions Act, and advised that the obligation to register as a pre-paid business could vary depending on the method of service provision between merchants. Thirdly, we reviewed how the limits are applied to the issuance of electronic payment methods when an exemption from pre-paid business registration is granted. We reviewed the legal requirements regarding which specific regulations apply to pre-paid electronic payment methods that are exempt from registration under the Electronic Financial Transactions Act, and whether the maximum issuance limit would also be exempt accordingly. Point payments are a payment method used in many online markets, allowing consumers to purchase various products and services through these systems. Law firm Veat comprehensively reviewed whether the Client’s point system could be considered a pre-paid electronic payment method under the Electronic Financial Transactions Act, and whether to comply with the applicable regulations accordingly, and provided guidance. Pre-paid electronic payment methods: Why proactive legal review is necessary On September 15, 2024, the revised Electronic Financial Transactions Act, which significantly strengthens regulations on pre-paid electronic payment methods, came into effect, which is expected to have a significant impact on electronic commerce and fintech companies. Firstly, pre-paid businesses are now required to separately manage at least 50% of the pre-paid recharge funds and safely store them through designated institutions such as banks - a new obligation to protect pre-paid recharge funds. Also, the registration criteria for pre-paid businesses have been strengthened, allowing exemptions only when the outstanding balance is less than 300 million won and the annual issuance amount is less than 5 billion won. A registration obligation is imposed when used by multiple merchants. Furthermore, the refund obligation has been expanded, requiring that the full balance be refunded to consumers if the terms of use of a pre-paid electronic payment method are changed or merchants are reduced. The revised law requires the financial soundness of pre-paid businesses, and newly establishes rules of conduct allowing only pre-paid businesses that meet certain requirements to provide benefits such as discount issuance and credit point redemption. With the revised Electronic Financial Transactions Act coming into effect on September 15, 2024, companies managing pre-paid recharge funds or issuing pre-paid electronic payment methods need to expedite preparations for pre-paid business registration. In particular, registration requirements have been strengthened, so companies that were not previously registered as pre-paid businesses need to review new legal requirements and finalize registration procedures. A clear understanding of compliance requirements under the Electronic Financial Transactions Act and the establishment of a lawful business model based on this is an important key point for the success of a company. Law firm Veat is providing legal advice to companies operating pre-paid electronic payment methods, such as point payment systems, to keep pace with these changes, and to help companies comply with the revised law regarding pre-paid business registration and legal requirements. Law firm Veat has extensive experience collaborating with various companies operating pre-paid electronic payment methods, such as point payment systems, and is minimizing legal risks and supporting successful business operations. Companies can use the assistance of Law firm Veat’s electronic financial transactions and IT legal experts to prepare for new legal requirements and smoothly proceed with pre-paid business registration, so if you need assistance with pre-paid electronic payment methods or matters related to the 「Electronic Financial Transactions Act」, please contact Law firm Veat. Thank you. Law firm Veat