South Korea: Crypto Exchanges to face Direct Regulation

Crypto exchanges have become a cornerstone of the blockchain industry as they are how most people acquire cryptocurrency and also the means by which is traded and moved across the globe. It has enjoyed niche status for a few years but as cryptocurrency becomes a bigger part of the global financial world, cryptocurrency exchanges are seeing more prominence and as a result, will be subject to more scrutiny and regulations because of the increased impact.

This is the case in South Korea as the Financial Intelligence Unit of the Financial Services Commission has announced according to an August 7, 2019 report that cryptocurrency exchanges will be brought under their direct regulation.

Increased Scrutiny

Before now, cryptocurrency exchanges were regulated indirectly with the commission issuing guidance to domestic banks which in turn trickled down to the activities of cryptocurrency exchanges being monitored and regulated.

Now the commission will be introducing a new crypto exchange licensing system via the recommendation of the Financial Action Task Force that will help create transparency of cryptocurrency transactions. This is similar to the bitlicense that is used in New York in the United States where businesses that are dealing with digital currencies must obtain a license and undergo certain reviews before they are granted.

A public hearing was held at the National assembly Members Office in Seoul where the head of administration and planning Lee Tae-hoon spoke on the matter.

“If an amendment to the Act on Reporting and Use of Certain Financial Transaction Information, which reflects the FATF’s international standards for cryptocurrencies, passes the National Assembly, it will be possible to prevent money laundering through cryptocurrencies,” he said. 

He also added that lawmakers’ approval of the decision to shift away from indirect regulation could be more effective within the sector and could prevent money laundering, illegal activities and the loss of funds on the part of consumers. It has been speculated that the regulation amendments will integrate existing stipulations such as the requirement of banks to issue real-name accounts to crypto exchanges and this will make sure that crypto exchanges adhere to know-your-customer and anti-money-laundering standards that other financial institutions are subjected to.

As crypto becomes even more prominent across the world, we can expect more laws like this to be implemented in various countries.