Since South Korea's crypto regulation update, there has been a lot of news about the crypto industry in South Korea. Indeed, South Korea’s stance on cryptocurrencies quickly evolves in line with the country’s increasing adoption. As reported by the media outlet Chosun, more and more young Koreans are turning to crypto trading to make earnings. This interest from young Korean coupled with clearly established crypto regulations makes South Korea an important country for crypto adoption.
State of crypto regulation in South Korea
2020's amended AML law includes crypto
As we covered before, South Korea recently implemented a new regulation focused on cryptocurrencies. The law entered into force on March 25, 2021. It sets several AML/CTF requirements on VASPs established in the country such as customer due diligence or reporting requirements.
This law aims at making the crypto industry safer in the country. However, it could be tricky for all Korean exchanges to comply. Indeed the requirements include implementing real-name verification with banks for example. Indeed, smaller exchanges could have a hard time finding a bank willing to partner with them for example. Nevertheless, all VASPs have until mid-September to be fully compliant with this regulation.
However, in April, the head of the FSC said that the regulatory authority hasn’t yet received registration applications from VASPs. And, that this could lead to shutdowns if the situation fails to change by the September deadline.
Regulatory bodies' roles in the crypto AML law
In late May, the Korean government issued a joint statement. It clarifies the role of government authorities in the overview of cryptocurrency and VASP regulations according to a report. The roles are as follows:
- The Financial Services Commission (FSC) will monitor VASPs, manage crypto regulation and ensure that crypto businesses comply with AML requirements;
- The Finance Ministry, the Fair Trade Commission, the National Tax Services, and Korea Customs Service are also overviewing crypto regulation and supervision;
- The Korean Financial Intelligence Unit manages crypto businesses registrations;
- The Science Ministry will promote blockchain and fight hacking incidents;
- The Korean Police will deal with crypto-related crimes.
Besides according to the Korea Herald, the Central Bank of Korea (BOK) also plans to use its authority to monitor crypto transactions made with bank accounts through the real-name verification partnerships that VASPs must implement with banks.
Korea’s Central Bank Digital Currency in the making
Korea’s BOK has been keen on setting up its own central bank digital currency (CBDC) as other countries are preparing CBDC pilot tests worldwide. In February 2021, BOK issued a study stating that CBDC will be considered as fiat and will have a legal tender unlike private cryptocurrencies such as Bitcoin.
A month later, in March, the BOK developed its stance on CBDCs. Indeed, it explained that it believes the issuance of a national CBDC would decrease the demand for other cryptocurrencies like Bitcoin.
The pilot test in South Korea should begin in the second half of 2021 and will focus on fund transfer, payment, issuance, distribution, redemption.
Crackdown on illegal activity
According to recent announcements, it seems that the country wants to focus on preventing cryptocurrency-related scams and money laundering (ML).
In April 2020, the Office for Government Policy Coordination (OPC) issued a press release. More specifically, it informs of a crackdown on illegal activity using cryptocurrencies from April to June. This will be possible notably through intensive analysis of suspicious crypto transactions. This crackdown is aimed at preventing ML through cryptos that increased recently because of the overall increase in crypto prices.
Moreover, Yonhap reported in May, that South Korea will collaborate with the national police to fight crypto phishing scams. This comes amid increasing reports of such scams targeting crypto users in the country. Indeed the ICT ministry claimed it has unveiled 32 phishing sites in the past 3 months. 42 were discovered in total in 2020.
South Korea crypto taxation regulation
Last year, the country proposed a new tax code concerning crypto. It was set to come into force in October 2021 but was delayed to January 2022 instead. From this date, crypto trading earnings will be subject to a 20% tax if profits exceed 2.5 million South Korean Won (around $2,200). The amendment has been issued in January this year.
In April, the city of Seoul announced having seized the equivalent 25 billion won (around $25 million dollars) in cryptocurrencies from tax dodgers that were hiding their assets with crypto held in exchanges according to Yonhap.
Update on June 18, 2021
South Korea continues to tighten regulations concerning cryptocurrencies with several new rules to comply with.
As reported by the Korea Times, the FSC issued guidelines on June 14, requiring banks to classify their crypto exchange customers as high risk and conduct strengthened transaction monitoring and ID verification on them to ensure better consumer protection. Last week, South Korea’s FSC warned 33 crypto trading platforms that it would conduct field consultations before the deadline of September 24.
According to the Korean Herald, the strengthening regulation pushes Korean exchanges to delist specific digital assets. One of the largest exchanges in the country, UpBit, issued a warning on 25 digital assets. Also, it plans to delist 5 digital assets. According to Arirang, 11 out of the 20 exchanges that received the Information Security Management System certificate which is needed to comply with the upcoming regulation, either delisted digital assets or issued warning notices on digital assets.
Arirang also reported a new FSC-issued rule prohibiting crypto exchanges to handle cryptocurrencies issued by themselves or by persons related to them (spouses and distant relatives included). This new rule comes into effect on June 26.
Complying with crypto AML regulation in South Korea
There have been a lot of developments around cryptocurrencies in the last few months in Korea. The next major milestones are the implementation of the new AML/CTF regulation in September 2021. And the new tax code coming into force in January 2022. Just like in South Korea, crypto regulation is evolving fast around the world. Accordingly, more governments expect VASPs to comply with new requirements.
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