South Korean Regulator to Open Blockchain Department

Once deeply suspicious of cryptocurrency, South Korean lawmakers have done a 180 this year.

The Financial Services Commission, the financial watchdog of South Korea, plans to establish a department dedicated to the blockchain industry, according to the Korea Times.

The department will be called the Financial Innovation Bureau, and it will be a temporary body, active for only two years. The FSC said that its purpose is to nurture the country’s blockchain and fintech industry.

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An FSC spokesperson said: “The new Financial Innovation Bureau will also be tasked with policy initiatives for financial innovation, such as innovating financial services using fintech or big data, and responses to new developments and challenges such as cryptocurrencies.”

A brief history of cryptocurrency regulation in South Korea

This development is likely to be embraced by cryptocurrency businesses. Cryptocurrency regulation in South Korea has been very strict, although this year it has shown signs of being relaxed.

It began in September 2017 when the FSC outlawed initial coin offerings and cryptocurrency trading with credit, arguing that these things were damaging to the market. It warned of stern penalties to transgressors of the law. FSC chairman Choi Jong-ku said: “Virtual currency is currently unable to function as a means of payment and it is being used for illegal purposes like money laundering, scams and fraudulent investor operations.”

In January 2018 the authorities announced a ban on anonymous trading.

This status quo was not challenged until May 2018, when politician Hong Eui-rak set up a group to campaign for the re-legalisation of ICOs under government supervision. Shortly after that, the Financial Supervisory Service, which is a subordinate office of the FSC, got a new chairman who is known to be a reformer.

That same month, the authorities defined Bitcoin as an asset for the first time. The fact that the decision was only taken so that a convicted criminal’s money could be legally confiscated is beside the point. It led to the government accepting the blockchain industry as a legitimate business concern for the first time, writing detailed legal designations for all aspects of the field in July 2018.

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A briefer history of cryptocurrency self-regulation in South Korea

The South Korean blockchain industry has a self-regulatory organisation, the Korea Blockchain Association, which was set up in January 2018.

A couple of weeks ago the KBA lost a lot of legitimacy when it approved all of the cryptocurrency exchanges that it inspected after inspecting them. It should be noted that its membership includes the country’s biggest cryptocurrency exchanges.

In April 2018, the organisation proposed rules for the industry, such as that businesses store their own money and clients’ money separately, that they react quickly to any abnormal transaction, and that they submit financial statements. It gave member companies a deadline of the 8th of May to submit self-inspection reports, and inspections began on the 1st of May 2018.

After completing the inspections, the KBA announced that all of the country’s 12 cryptocurrency exchanges had passed its standards. This was naturally met with suspicion, especially given the fact that the association did not release details of the inspections or scores received.

Following the announcement, KBA chairman Jhun Ha-Jin said at a press conference at the head office of the Korea Federation of Banks: “This inspection does not guarantee the absolute safety of the 12 exchanges. The result indicates the 12 exchanges satisfy the minimum requirement for their operations. It is like a driver’s license. It is hard to tell whether they are good drivers or not.”

This was doubly suspicious when you look at the performance of the country’s cryptocurrency exchanges.

Exchange YouBit filed for bankruptcy in December 2017 after losing 17 percent of its money to thieves, and only last month an exchange called Coinrail lost millions of dollars to a hack.

The biggest exchange in the country, Bithumb, has quite a history too. In July last year, hackers stole the data of 30,000 of its customers, using the information to steal large amounts of money. BTC Korea.com, the operator of the exchange, was fined for not protecting the data. In May this year it discontinued a cryptocurrency called Popchain after people noticed that the coin didn’t look like a real project and that the team behind it also happened to work for Bithumb. And then in June, it lost $31.6 million in customer money to hackers, and was forced to pay customers back out of its own pocket.

 

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