The much-hyped initial public offering of Kakao Pay for October has been splashed with cold waters as heightened regulations on fintech services by dominant platform operators will likely cripple most of its competitive services.

The Financial Services Commission and the Financial Supervisory Service announced on Tuesday that sales and recommendations of financial products like insurance, credit cards and funds by financial platforms constitutes intermediation, rather than advertising. As intermediation by unregistered business entities is prohibited under the Financial Consumer Protection Act, platform companies need to register with the FSC until Sept. 24, or modify or halt such services.

The country’s payment platform giants including Kakao Pay, Naver Financial, and Toss, as well as the Korea Fintech Industry Association has requested the FSC to extend the grace period during an emergency meeting held on Thursday.

Financial authorities turned down their demand based on the “same rule on same function” principle, claiming fintech and big techs should fall under the same set of rules mandated on other financial players.

The FSC’s move has sparked a nosedive in the stock prices of big techs Naver Corp. and Kakao Corp. that own the country’s leading fintech service platforms and dampens the prospects for the Kospi debut of Kakao Pay on Oct. 14.

Kakao Pay, the fintech unit of Kakao, offers cash rewards for any transaction made through its payment system, which can be invested into funds from its subsidiary Kakao Pay Securities. The company has also earned handsome profits from commission fees on its insurance services provided in partnership with the country’s second-largest internet-only insurance company Kyobo Life Planet Insurance.

Under the new regulation, Kakao Pay’s micro-scale investment and insurance services can be deemed an act of intermediation that broker investment products and therefore must be discontinued.

Kakao Pay earlier this week submitted a revised IPO prospectus with a lowered indicative IPO price range at the request of FSS. Market analysts worry that the latest state’s measures can further dampen investors’ appetite for the fintech firm’s listing.

Fintech companies have promised to do their best to abide by the new regulation and modify the form of their services before the grace period ends.

By Lee Sae-ha and Lee Soo-min

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