Since the financial sector restructuring after the 1997 crisis and the international financial reform after the 2008 global financial crisis completed with a well stabilized system, the main policy attention has shifted towards financial innovation. In general, financial innovation refers to a series of deregulation or redesigning to enhance the convenience of financial services, strengthening the competitiveness of the financial industry. In contrast, financial innovation in the era of digital transformation is characterized by more specific and practical attempts to drive profound changes in financial services than the general financial innovation. With the convergence of ICT and finance, transaction costs are drastically reduced, and the processes constituting financial services are subdivided into detailed tasks which are combined and synthesized to new services, Such a new type of services are sometimes not subject to or even contradicting to the existing financial regulatory system.

The so called unbundling and rebundling of financial services in the process of financial innovation have brought about a large legal gray zone in financial activities, That is, newly attempted activities are not clearly judged as lawful because of its absence of the stipulated financial codes so as to be often unduly checked. Also, financial innovation where platform and data-based technology companies enter the financial markets makes the boundaries of the financial industry blurred (Big Blur) and shifts customer contact points with non-financial firms, weakening an intermediary function of traditional financial ones. Ultimately, innovation to converge ICT and finance requires changes in the financial markets, industry, and system itself so that financial authorities confronts with a situation in which they must decide switching to a new system. In this sense financial innovation in the era of digital transformation is not just deregulation in the existing sphere, but means a reform and redesign of regulations at the micro and macro level.

When digital finance becomes commonplace, the financial regulatory system will also face serious challenges. For example, virtual assets are not underpinned with a clear legal foundation but are traded like securities and geared with leverage, mimicking conventional banking and brokerage in the name of innovation. The ICT companies, which are ambiguous to be classified as financial firms under the current system, function as service providers in the financial markets, or even pursue a decentralized finance platform where financial service intermediary firms do not necessarily exist. Thus, it is not so early that policymakers set the agenda for financial innovation which is fulfilling and harmonizing with policy objectives such as consumer welfare and protection, financial industry competitiveness as well as systemic stability.

This study examines the development of financial innovations related to recent digital transformation and resulting emergence of new tasks and services, and proposes the direction of financial policies focusing on regulatory and supervisory challenges and reforms. It proposes detailed policy suggestions on how to regulate electronic payment industry and security token markets. It then deals with regulatory and supervisory issues on systemic stability and consumer protection in the prevalence of digital platform. It also argues the divergence of production and sales of financial services in the digital transformation and consequently long-time controversial debates over banking and commerce separation. Finally, it discusses a legal framework and financial policy approaches consistent with regulatory paradigm shift in the digital transformation.

Publisher's Note
Summary

Chapter 1: Introduction
　1. 1: Policy Implications of Financial Innovation
　1. 2: Development of Financial Innovation
　1. 3: Contents of Each Chapter
References

Chapter 2: Roadmap to Regulate Payment Settlement to Promote Innovation, Financial Stability and Competition
　2. 1: Market Opening in Accordance with the Amendment of The Electronic Financial Transactions Act
2. 2: Stage-specific Transformation of the Financial System after Market Opening
　2. 3: Roadmap for Payment Settlement Regulation: Step-by-step Approach to Regulation
　2. 4: Conclusion
References

Chapter 3: Direction for Organizing the Virtual Asset Market System: Focusing on Security Token Markets
　3. 1: Introduction
　3. 2: Current Status of Security Token Issuance and Regulation
　3. 3: Security Token Market System
　3. 4: Directions for Legal Framework Improvement for the Utilization of Security Tokens
　3. 5: Conclusion
References

Chapter 4: Risks and Policy Directions for the Platformization of the Financial Sector
　4. 1: Risks of Digital Transformation in the Financial Sector
　4. 2: Competition among Financial Platforms and Regulation on Banking-Commerce Separation
　4. 3: Regulation and Supervision of Financial Platforms
　4. 4: Challenges for Promoting and Risk Managing Digital Innovation
References

Chapter 5: Financial Innovation and Principle-Centered Consumer Protection System
　5. 1: Introduction
　5. 2: Limitations of Financial Consumer Protection Regulation in the Era of Financial Innovation
　5. 3: Policy Cases and Challenges for Strengthening Financial Consumer Protection
　5. 4: Principle-Centered Financial Consumer Protection System
　5. 5: Conclusion
References

Chapter 6: Reestablishing Regulatory Framework in the Digital Financial Environment
　6. 1: Introduction
　6. 2: Significance and Structure
　6. 3: Financial Market Changes and Legal Systems
　6. 4: Institutional Significance of Financial Companies as Regulatory Targets
　6. 5: Mix of Financial Regulation and Infrastructure
　6. 6: Financial Changes and Risk Management
　6. 7: Paradigm Shift in Financial Regulation
　6. 8: Conclusion
References

Chapter 7: Financial Innovation and Financial Reform
　7. 1: Policy Implications of Financial Innovation
　7. 2: History of Financial Policy
　7. 3: Financial Reform in the Digital Age
　7. 4: Prerequisites for Financial Reform
　7. 5: Conclusion
References

Abstract