On October 18, 2024, the Korea Fair Trade Commission (“KFTC”) announced its plan to propose an amendment to the Fair Large-Scale Distribution Transactions Act (“FLTA”) to regulate certain online sales brokerage platforms as “large-scale distributors.” The proposed amendment would impose heightened requirements on the regulated platforms, including a 20-day payment settlement period for third-party sales on the platforms and a requirement to “safely manage” at least 50% of transacted amounts, and potentially subject them to other laws aimed at large-scale distributors. The KFTC will seek to formally propose the amendment before the National Assembly soon.
The KFTC described this proposal as a response to, and an attempt to prevent the recurrence of, the recent crisis involving delayed payments to vendors by e-commerce platforms TMON and WeMakePrice. According to the KFTC, delays and non-settlements on third-party sales made on TMON and WeMakePrice during this summer resulted in a range of alleged harm to consumers and vendors, including unilateral cancellation of customer purchases and denial of refund requests.
In response, the Administration formed a multi-agency task force, which included the KFTC, the Financial Services Commission, the Financial Supervisory Service, and the Ministry of SMEs and Startups, to provide appropriate relief to the affected consumers and vendors and propose a plan to prevent the recurrence of similar events. This announcement by the KFTC follows public hearings, as well as consultation with other government agencies, interested parties, and members of the National Assembly.
Key details of the KFTC’s proposed amendment are as follows.
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Platforms Regulated Under the Proposed FLTA Amendment
The KFTC’s plan specifies that qualifying online sales brokerage platforms – that is, online platforms that meet a certain size criteria and intermediate the sale or subscription of goods (including gift vouchers) and services between third-party sellers and consumers (e.g., open markets, hotel booking apps, delivery apps, app markets, mobility apps) – will be regulated as “large-scale distributors” under the proposed FLTA amendment. Platforms that merely provide information without requiring subscription by or payment from consumers will be excluded.
Under the KFTC’s proposal, online platforms meeting the following thresholds will be subject to the FLTA: a domestic sales revenue of at least KRW 10 billion from intermediating transactions (e.g., from sellers, advertisers) or intermediated transactions worth at least KRW 100 billion in total during the previous year. These new thresholds would be added to the existing criteria for applying the FLTA: companies with retail sales of at least KRW 100 billion during the previous year or a store area of at least 3,000 square meters.
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Separate Settlement Deadline for Online Platforms
The planned proposal would require regulated platforms, which either directly receive and manage payments from consumers or hire a payment gateway (“PG”) company to receive and manage such payments, to settle the sales proceeds with third-party sellers within 20 days of the purchase confirmation date, with certain exceptions. For services that are to be provided at a set date in the future (e.g., hotel booking, travel package, concert tickets), the KFTC’s plan would allow regulated platforms to settle payments within ten days from the date the consumer actually uses the service. If a platform (or PG) does not receive payment from a consumer within three days of the settlement deadline, the platform may settle the sales proceeds with the applicable seller within three days from the date the platform receives payment from the consumer.
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Safe Management of Sales Proceeds
The planned proposal would require regulated platforms that directly receive and manage payments from consumers to safely manage 50% of the sales proceeds, excluding brokerage fees or other financial assets, in the form of a deposit (in a separate financial institution) or payment guarantee insurance. Such sales proceeds may not be set off or seized, and the platform is, in principle, prohibited from transferring or using such sales proceeds as collateral. The proposed FLTA amendment also introduces a preferential payment right so that the amount payable to the sellers is protected even if the platform goes bankrupt.
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Ensuring Fairness and Transparency
Regulated platforms would be subject to certain existing obligations under the FLTA that are designed to ensure fairness and transparency in transactions between platforms and third-party sellers. Such obligations include those regarding drafting and provision of contracts (Article 6), adoption of model contracts (Article 6-2), execution of agreements (Article 19), dispute mediation (Articles 20 through 28), and fact-finding surveys (Article 30).
In addition, regulated platforms would be prohibited from engaging in certain types of unfair trade practices that currently apply to offline transactions, including coercion to bear promotional expenses (Article 11), forcing exclusive transactions (Article 13), requests for provision of management information (Article 14), interference in management activities (Article 14-2), request for provision of economic benefits (Article 15), imposition of disadvantages (Article 17), and retaliatory conduct (Article 18).
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To ensure that platforms have sufficient time to prepare for the new regulations, the KFTC plans to implement a one-year grace period following promulgation of the FLTA amendment, and establish transitional provisions to gradually shorten the settlement period for sales proceeds (40 days → 30 days → 20 days) and gradually increase the sales proceeds percentage requiring separate management (30% → 50%) after the FLTA amendment takes effect.
The KFTC noted that it plans to propose the FLTA amendment bill soon. Online platforms and vendors doing business on such platforms are advised to closely monitor key developments in relation to the proposed FLTA amendment.
[Korean Version]
