Korea virtual currency regulation draft lawColin Baseman
The legislature of South Korea adopted a draft law on the regulation of virtual currencies. They are recognized as digital assets. Companies that work with virtual money must follow the FATF's requirements for preventing money laundering. It is also mandatory to register with the Financial Intelligence Unit of the Financial Services Commission (FSC).
Rules for Working in the Cryptocurrency Market in Korea
The certificate will not be issued for those who do not notify authorities of suspicious activity and will use unidentified bank accounts. Violation of the requirements will entail punishment: a fine (up to 42.5 thousand dollars) or imprisonment for up to 5 years.
The FSC is confident that the draft law will help make the digital asset market more transparent and will facilitate the flow of investment in it, as they become fully legal. According to forecasts, the draft law will become effective one year after a positive vote on it.
FATF recommends tightening control over cryptocurrency exchanges in South Korea
Korean authorities intend to increase the powers of the FSC and thereby better control the work of local cryptocurrency exchanges. The regulator’s unit, which in the past developed recommendations on cooperation with exchanges for banking organizations, will directly monitor the sites. Officials talked about the introduction of a licensed system for crypto exchanges in Korea. This initiative was put forward by the FATF. The solution is designed to make the crypto industry more transparent.
Lee Tae Hong of the FSC made a statement: “If the National Assembly approves the amendments to the Law on the provision and application of data on certain financial transactions to the FATF requirements, we will have a powerful tool to combat money laundering using digital currencies.”
Mr. Lee Tae Hong believes that using direct regulation instead of indirect regulation will allow better control of the cryptocurrency sphere.
In early summer 2019, the FATF introduced the final version of the cryptocurrency guide. It notes that cryptocurrency service providers, including trading platforms, are required to follow the CFT and AML procedures similar to classic financial institutions.
What will the new rules mean in practice
The FATF has decided to oblige cryptocurrency exchanges to provide each other data about users if they perform transfers between platforms. This applies to such information:
- Sender name, cryptocurrency wallet details
- Recipient name, cryptocurrency wallet details
- Passport data or sender user ID, physical address
Regulators of states, which are members of an interstate organization are required to comply with established requirements and make sure that each VASPs has the required data, stores it and readily provides it. Governments and businesses have 1 year to implement recommendations. The organization is expected to conduct its first audit in the summer of 2020.
A number of experts made attempts to convince the FATF of the uniqueness of the blockchain sphere that it is difficult to comply with all the rules that apply in the banking industry. The organization was warned about the possible departure into the shadow of a significant share of the cryptocurrency business, which would harm the privacy of customers on trading floors and reduce the effectiveness of law enforcement agencies.
Under the new rules, each individual or organization that provides cryptocurrency services is required to undergo licensing or registration in the jurisdiction. This will allow the competent authorities to ensure that the founders of the VASPs are not criminals.
If a company that provides services decides to change the ownership structure or organization of a business, it will need to obtain the appropriate permission from the regulator.
FATF has affected mixing services. For example, VASPs are required to minimize the risks associated with transactions. If this is not possible, then the provision of services should be refused. Companies are required to “freeze” customer money if the latter is on the sanctions list.
As of today, 37 states are members of the FATF; there is no strict obligation to follow the recommendations. At the same time, when blacklisted, the outflow of foreign investment from the country will begin. The article “Regulation of cryptocurrencies in Asia” will help to learn more about the current restrictions on digital money in the Asian region.
South Korea Intends to Allocate Over $ 380 Million for Blockchain Development
The Korean Ministry of Science and Technology intends to spend more than $380 million for studying and development of blockchain technology. Money will be allocated in the period 2021-2026. The initiative aims to create a powerful base for a data economy built on distributed register technology.
One Korean senior official stated: “The problem of confidence in information can be resolved through the development of a data economy. Blockchain can assist in building a trusted base for the exchange of information”. The Ministry of Science and Technology is exploring the interoperability of blockchain, smart contracts, as well as consensus algorithms and scaling issues.
The desire for regulation in South Korea is a positive signal. Securing cryptocurrencies at the level of the country's legislation will be an important step in attracting investment in blockchain projects. Tough punishment for violation of requirements will allow developing a serious attitude to the processes and obtaining licenses. Therefore, if you are thinking about investing in cryptocurrencies or trading on the exchange, be sure to take a look at Korean platforms. They have always been highly reliable, and the favor of the authorities will help this area continue to develop dynamically.
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