On June 8, the South Korean Policy Advisory Council met to develop a regulatory framework for national cryptocurrency exchanges. Following the recent Coinrail Exchange hack, the South Korean government is imposing more stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) policies to better protect investors.
Cryptocurrency Exchanges Recognized As Financial Institutions
With the intention to develop new policies for traditional financial institutions, the Korean Financial Intelligence Unit (KFIU) added cryptocurrency exchanges to the discussion in an effort to find new ways of regulating the nascent markets.
After the $33 million hack of Korean cryptocurrency exchange, Coinrail, the South Korean government is taking steps towards implementing new KYC and AML policies for financial institutions.
Currently, the Korean Free Trade Commission does not have authority to access or monitor cryptocurrency exchanges and their customers.
In fact, cryptocurrency exchanges in South Korea only need to obtain a $40 communication vendor license to legally run and operate.
In a leap forward for cryptocurrency legitimization, the KFIU recognized cryptocurrency exchanges as large-scale financial institutions – subject to the equivalent scrutiny as that of commercial banks and stock markets.
Describing the implications of the emerging regulation, a KFIU spokesperson told CCN:
“Under current regulations, there are clear limitations in preventing money laundering on crypto exchanges because the only way authorities can spot suspicious transactions is through banks. If the bill of lawmaker Jae Yoon-kyung from the Democratic Party of Korea passes, local authorities will be able to impose identical regulations on crypto exchanges that are implemented on commercial banks.”
Korean Government Previously Reluctant to Legitimize Cryptocurrency
In an article released last year, Korean media outlet Hankyoreh revealed that Korean authorities encouraged policymakers to develop more stringent laws on regulating cryptocurrency early on.
At the time, it became evident that the Korean government was deliberately refraining from establishing regulation in order to postpone legitimizing markets.
In an interview with Hankyoreh, National Assembly Committee member Park Yong-jin stated:
“We are frustrated as well. We fully understand that the government is reluctant towards regulating the cryptocurrency market because it will inevitably lead investors to consider it as the government’s way of legitimizing the market. But, if the government leaves the cryptocurrency market unregulated, it is simply leaving it vulnerable to various issues.”
With the cryptocurrency and blockchain industries quickly coming into the global mainstream, the need for regulation becomes more relevant and pressing as an anchor for transparency in the space.
The entrance of institutional firms and regulatory development will set the stage for the worldwide adoption of cryptocurrency.
With new regulations coming into place, Korea is one of the first countries to take steps towards bringing cryptocurrency markets out of the shadows and into the public light.
Cover Photo by Saveliy Bobov on Unsplash