The government of South Korea has passed a bill indicating that a comprehensive cryptocurrency regulation will be coming to the country in the near future.
The country itself is very blockchain-friendly, considering the number of blockchain startups and crypto exchanges that are registered in Seoul, the capital. The past regulatory discussions have always been in favour of the blockchain as well. The South Korean government was more than keen on making a blockchain-powered city.
They agreed on this notion and chose Busan as their primary target. The main goal was to somehow increase blockchain tourism, meaning that every crypto investor would be able to visit Busan during any season and survive on nothing else than Bitcoin, Ethereum and etc.
However, the country was facing serious privacy issues when the government was blocking any transaction made without ID verification. This was encroaching on the very foundation of the blockchain technology, but it seems to have been resolved.
The Korean investor community was more than fine with disclosing their identities as long as they had comprehensive liquidity pipelines for their assets.
What will the regulation look like?
According to the Financial Services Commission (FSC), the financial regulator of South Korea, crypto exchanges registered on South Korean territory will have to report to them from here on out. What this means is that the exchanges will have to register and acquire a license for providing financial services on cryptocurrencies.
Furthermore, the exchanges will have to implement strict KYC and AML policies as well as heavily monitor on who registers and identifies themselves on their platforms. Any violation of this conduct and the exchange could either have their license revoked, or receive a hefty fine.
Why such a quick desire for regulation?
As already mentioned South Korea is one of the few crypto-friendly countries out there. But that doesn’t mean that the government is not getting itself involved in the field. None of the deputies in the South Korean parliament wants there to be anarchy with cryptos. Their main concerns are about the out-of-hand drug trade that is going on in Europe with the help of Bitcoins and various other cyber crimes conducted by investors.
Furthermore, multiple South Korean industries have started adopting the blockchain technology. This has especially been the case with the entertainment industry as expressed here and various other sources. Things like escape rooms, internet cafes and various other digital platforms have started accepting cryptocurrencies as a medium of exchange or registering new users on a blockchain system.
All of that requires some kind of looking into from the government, simply to make sure that there is no misconduct going on not from the investors themselves, but the companies servicing them.
This was especially hard for Escape room suppliers who were mostly keeping all of their accounting processes on a blockchain system and paying as well as receiving payment via Bitcoins and Ethereum. This helped them dodge state taxes for the most part, or simply convince the government that they were just a small business when the reality was that their income was in the millions.
Similar cases can be found in multiple digital platforms accepting cryptos as payment. Almost all of them convince the government that their income is much lower than it actually is.
With the new regulation, they will have to register their “banking accounts” on local exchanges thus be subject to constant monitoring from the FSC. Should the government have any questions about accounting issues in the past, it will have unopposed access to the suspect’s files.
Is the regulation good or bad news?
The way the new legislation has been formulated, it seems to be for the better of the crypto exchanges themselves, but the customers will have to give up much more than they will receive.
For one thing, it will be similar to an anti-fraud wall, which will most likely be circumnavigated by multiple scammers. But considering the number of benefits that Korean-registered crypto exchanges offer to their customers, it’s going to be on a very small and manageable scale.