South Korea Increases Crypto Investigations And Regulations

[TL; DR]

South Korea has one of the most significant users and holders of cryptocurrency in the world.

10% of the country's population holds a digital currency, and the country will contribute 9% of the global crypto trade volume in 2021.

South Korea has one of the world's strictest crypto licensing and operating laws.

Under the Financial Services Commission(FSC), the Korea Financial Intelligence Unit (KoFIU) is the highest government authority responsible for oversight functions on cryptocurrency.

The KoFIU is responsible for examining compliance and enforcement of Anti-money laundering requirements in South Korea.

The Supreme Prosecutor's office also has the right to conduct criminal investigations and prosecute money laundering-related offenses.

The bulk of the crypto regulations in South Korea is tailored toward Virtual Asset Service Providers (VASPs).

There are various guidelines before an entity can be considered a Virtual Asset Service provider in South Korea.

A VASP operating in Korea must register as a recognized company, have a bank account, utilize a risk-based approach, conduct customer due diligence, acquire an information security management system, etc.

In March 2022, the South Korea Government announced the launch of an upcoming Digital Assets Committee.

The committee will investigate the Terra/Luna crash and provide a temporary structure for VASPs.

Keywords: South Korea, Crypto, cryptocurrency, regulation, investigation, laws, Virtual Assets Service Providers (VASPs)

[Full Article]

South Korea has one of the most significant users and holders of cryptocurrency. Since 2017 when the country first had its Crypto boom, it has become a “crypto hotspot.” Research shows that the country is one of the world's top 5 largest crypto markets, with about 9% of the global trade volume in 2021.

For such a country, there is a need for the government to investigate and regulate the activities of the crypto ecosystem. With about 10% of the country's population actively participating in the crypto ecosystem, it is expedient to keep a close tab.

Over time, the South Korean Government has promulgated several laws and regulations to oversee the crypto space. Recently, these regulations have tightened.

This article will shed light on the existing regulations and how the government is increasing the investigations and regulations.

Let's begin!

Government Authorities Regulating Crypto In South Korea

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Image: Yahoo Finance

South Korea has one of the world's strictest licensing and operating laws. The Korea Financial Intelligence Unit (KoFIU), established under the Financial Services Commission (FSC), is the highest government authority overseeing crypto and other digital assets. This Government agency is responsible for examining compliance and enforcement of Anti-money laundering requirements in South Korea.

Another Government body that possesses the exclusive right to conduct criminal investigations and prosecute Anti Money Laundering related offenses is the Supreme Prosecutors Office. This agency, alongside the Korean National Police Service, is responsible for investigating and prosecuting crypto-related criminal crimes like money laundering.

Similarly, the National Tax Service is the authority responsible for the investigation of crypto tax offenses and enforcement of tax regulations.

Cryptocurrency Regulations and Laws In South Korea

Image: IFLR

In South Korea, the significant actors or industry players directly affected by these regulations are the Virtual Assets Service Providers. The users bear a little brunt compared to these providers. Due to these increasing regulations, only a handful of Virtual Asset Service Providers (VASPs) exists in Korea’s crypto market.

In South Korea, there are guidelines before considering a business or technological entity as a Virtual Asset Service Provider. Such an entity must engage in the following ventures:

- The sale or purchase of Digital assets, storage or management of virtual assets

- Interchange or exchange of Digital assets with another asset

- Transfer of virtual assets for transaction purposes, exchange, or storage upon customers’ request

- Acting as an agent, providing brokering and intermediary services related to selling or purchasing digital assets.

Any entity engaging in the above ventures will be considered a Virtual Asset Service Provider in Korea and will be regulated. The newly introduced law adds that entities that trade cryptocurrencies, engage in crypto-to-crypto exchanges, crypto transfers, and crypto management will be considered a Virtual Asset Service Provider (VASP).

South Korea's VASP regulation compels these business entities to comply with the following rules:

- Register as a Government recognized company bank account and provide customers with bank accounts under their real name at the same bank.

- Utilize a Risk-Based Approach, including customer Due Diligence and suspicious report transactions, and implement the revised Anti Money Laundering/ Know Your Customers (AML/KYC) procedures in line with the March 2020 amendments.

- Develop or integrate a technology allowing customers’ private data exchange with the trading counterparties.

- The new regulation adds that these businesses must acquire an Information Security Management System (ISMS) certificate from the Korea Internet and Security Agency (KISA).

- Lastly, companies must furnish their identity details, including company name, representative name, contact information, business address, and bank details to the Financial Services Commission (FSC) and their Financial Intelligence Unit.

Another regulation in Korea that is peculiar to Virtual Assets Service Providers is the Anti-Money Laundering (AML) regulation. The newly increased crypto legislation has made it mandatory for South Korean-based VASPs to face strict sanctions should they fail to adhere to the regime's laws. The legislation applies to financial companies as defined by the 2020 FTRA amendment.

Similarly, an amendment to the existing crypto regulation was passed on the 5th of March, 2020. The amendment mandates all Virtual Assets, crypto service providers, and firms obtain an operating license from the Financial Intelligence Unit of the Financial Services Commission (FSC).

Finally, on the 31st of May, 2022, the South Korea Government announced the launch of an upcoming Digital Assets Committee. The committee will be set up as a temporary solution to provide structure for the virtual assets industry and complement the activities of FSS. The committee will work according to the announced guidelines, such as setting screening criteria for newly-listed assets, market & trade monitoring, level of disclosure, and other investor protection standards.

Before the setting up of the committee, the Terra coin crashed. In response to the crash, the South Korean Government opened an investigation against Do Kwon on the 24th of May, 2022.

The government has issued notices to crypto exchanges to prevent withdrawal and sequester funds related to the Luna foundation Guard. However, these crypto exchanges are left to either comply or await the government's following line of action.

Conclusion

This article encompasses the existing and newly introduced regulations. Therefore, entities that render crypto-related services in Korea must abide by these regulations to avoid sanctions.

Author: Valentine. A, Gate.io Researcher

This article represents only the researcher's views and does not constitute investment suggestions.

Gate.io reserves all rights to this article. Reposting of the article will be permitted, provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.