After much deliberation in the past years, South Korea has recently taken important steps toward regulating the crypto space. Today, the National Assembly’s national policy committee passed a bill that will lead to effective crypto oversight, although it still needs the buy-in of lawmakers on the main floor.
The new bill officially categorizes cryptocurrencies as digital assets and recognizes crypto exchanges as regulated financial businesses. This is a significant step in the country that has long been at the forefront of cryptocurrency adoption and will have far-reaching implications.
More specifically, this regulatory framework will require cryptocurrency exchanges to report and to register with the South Korean financial regulator, the Financial Services Commission (FSC). They will also have to comply with strict Know-Your-Customer (KYC) rules, Anti-Money Laundering (AML) regulations, as well as customer verification policies.
As stated, exchanges will also have to beef up their security systems to continue operating. Existing cryptocurrency trading platforms will also be required to report to the FSC’s Financial Intelligence Unit (FIU), with those failing to be certified under the Information Security Management System (ISMS) will not be approved. This certificate is issued by state-owned Korea Internet and Security Agency (KISA) in order to strengthen security measures and comply with these new government-mandated regulations.
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Historically, South Korea is one of the hottest investing and trading markets for cryptocurrencies. However, authorities have been hesitant in regulating the virtual asset class, due to their belief that cryptocurrency regulation could lend legitimacy to the sector.
Amending national laws that govern crypto activities
Cryptocurrency exchanges in South Korea are presently classified as information providers rather than financial institutions. Thus, they fall under the jurisdiction of the Korean Ministry of Science rather than Korea’s financial regulators.
But after the government has been criticized for not doing enough to prevent hacking damages, the Financial Supervisory Service (FSS) said it would widen its probe on accounting practices to include the nation’s big cryptocurrency exchanges. This announcement followed the prosecutors launching an investigation about the use of corporate accounts by crypto venues, which the regulators say can lead to money laundering.
South Korea’s exchanges hold about $1.9 billion worth of cryptocurrencies in their accounts, as per the latest report by the central bank of the country, which easily lists some of them among the big firms targeted by the latest FSS probe.
Last year, the major crypto venue Upbit was raided by government investigators and local police for alleged fraud. However, the exchange managed to pass independent audits, showing full solvency as Upbit’s reserves ratio stands at 103 percent and the cash ratio stands at 127 percent.