The National Assembly on Thursday rejected a proposed bill to ease regulations for online-only banks, which will deal a heavy blow to K bank, one of South Korea’s two online banks that is struggling to raise additional funds due to regulatory hurdles.

The bill was unexpectedly voted down 82:75 with 27 abstaining at the plenary session, although it received the green light from the legislation and judiciary committee a day before, raising anticipation it would boost the fintech industry.

The decision came after liberal lawmakers’ last-minute push to block the passage of the bill at the plenary meeting held late afternoon.

“Banks should be the most reliable corporate entities as they do business with money from the public,” said Chae Yi-bae, a lawmaker from Bareunmirae Party.

“Those who are likely to commit a fraud on the public do not deserve to be owners of banks.”

Initially intended to regulate traditional banking companies, the existing rule bans information and communications technology companies from gaining majority shares in a financial firm after they have violated antitrust laws in the past five years.

It has been considered by some critics as outdated for today’s banking business environment, which has seen the emergence of online banks with no physical branches. The planned revision of the bill was aimed at easing the tough regulations for the ownership of online-only banks.

Telecom firm KT has tried to raise its stake in K bank after a new regulatory change in January last year that allows nonfinancial companies to own up to 34 percent of an internet-only bank. Its attempt to increase its stake from the current 10 percent to 34 percent by investing approximately 590 billion won ($497.7 million) has so far been futile, as the mobile carrier has been accused of having participating in price-rigging schemes.

Since March last year, the Financial Services Commission has postponed a review of KT’s application to become the largest shareholder of the bank, citing the allegation.

“KT will discuss with other shareholders to find ways to raise funds needed for the online bank,” a spokesperson of the telecom firm said.

K bank stopped money lending services in April last year due to a shortage of funds with its Bank for International Settlements capital adequacy ratio hitting a low of 11.85 percent as of September last year, the lowest among local banking companies at the time.

By Kim Young-won (wone0102@heraldcorp.com)