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S.Korea’s all-encompassing crypto law — what we know so far

South Korean lawmakers are joining US and European lawmakers in acknowledging that cryptocurrencies and other so-called digital assets have taken hold here and regulation is needed to handle this new class of investment.

Welcome to the Digital Asset Basic Law.

The law is not unexpected, as South Korean President Yoon Suk-yeol mentioned the need for a new law during her election campaign in January. The country’s financial regulator, the Financial Services Commission (FSC), also endorses the need for rules to handle risks in digital asset trading.

“There are hopes that crypto-assets will accelerate financial innovation, but there are also concerns that they pose risks to investor protection and market stability,” FSC Chairman Ju-hyun Kim told parliament last week. “[The FSC] Actively participate in the law so that the virtual asset market can grow responsibly based on investor trust. ”

The South Korean government has informed local media that it will pay attention to crypto regulations from the United States and other countries when enacting laws. Specifically, it refers to reports issued by various U.S. executive agencies in October, pursuant to U.S. President Joe Biden’s Executive Order. About digital assets.

According to the Korea Financial Intelligence Unit (KoFIU), an estimated 5.6 million of South Korea’s population of 51 million are traded on the digital asset market, worth more than 55 trillion Korean won (US$42 billion) by 2021. was.

state of play

Currently, South Korea’s cryptocurrency regulations include amendments to the Act on the Reporting and Use of Certain Financial Transaction Information, which requires crypto trading platforms to obtain information security certificates and provide users with real-name accounts. is.

This will come into full force in September 2021 with the aim of reducing the risk of money laundering, embezzlement and price manipulation by banning anonymous trading.

The new Digital Assets Basic Law will come out of 13 proposals to be debated in the Diet.

“The Digital Asset Basic Law is currently in the research stage and we expect to show tangible results. [on the legislation] From the end of this year to the first half of 2023,” Jeong Jae-wook, a member of the ruling party’s virtual asset committee, said in June.

See related articles: South Korea’s Crypto Crackdown: What You Need to Know

President Yoon Seok-yeol, who started his term in May this year, initially said he would classify cryptocurrencies into two categories: security-like tokens and non-security-like tokens.

Tokens that act like securities, such as digital assets that represent ownership of company shares or assets, will be regulated under existing capital market laws, Yun said.

Non-security tokens, or utility tokens with functions other than investment mode, will be supervised under the new Basic Law to provide investors with better protection.

This mirrors the debate taking place in the United States, with proposed legislation in the Senate that would treat most cryptocurrencies as a type of commodity regulated by the Commodity Futures Trading Commission.

“Digital assets have the attributes of both financial assets and tangible assets,” said Kang Seong-hoo, president of the Korea Association of Digital Asset Service Providers. Forst“Therefore, we need to impose a certain level of rigorous scrutiny to ensure that investors feel safe to invest and minimize. [unfair trades] at the market. “

the contents are

So what is the Digital Assets Basic Law expected to do?

Current proposals in the Basic Law focus on the supervision of virtual asset service providers (VASPs). This includes the oversight of Virtual Asset Service Providers (VASPs). This includes requiring crypto businesses to keep customer funds separate from corporate funds to prevent the risk of misappropriation.

Most of the bill was introduced last year, but while it was being debated in parliament, domestic cryptocurrency project Terra-LUNA collapsed, evaporating its US$40 billion market cap in a matter of days. . About 280,000 local investors in South Korea are estimated to have lost money in the debacle.

See related articles: Terra-LUNA scarred South Korea pushes digital asset reform

After Terra-LUNA, the Basic Act on Digital Assets began to focus on managing the issuance and listing of cryptocurrencies and better protection for investors.

“First and foremost,[set]standards for crypto projects and exchanges in token issuance and listing,” said Kang of the Korea Association of Digital Asset Service Providers. “What follows is [regulation] Disclosure of information that forms the basis for investors to make investment decisions

Kang said the standards for listing, delisting and disclosure of cryptocurrencies remain opaque.

“Under what circumstances would a token be designated as a risk asset and what limit would it have to reach in order to be delisted? The Basic Act on Digital Assets should address that,” Kang said. . The head of the FSC confirmed at a meeting of the National Policy Board last week that the law would institutionalize standards for issuance, listing and prevention of unfair trading.

Kim Hyun-joon, chairman of the Korea Fintech Association, said pushing strict standards would bring clarity to both investors and companies. Forst.

“[Companies] They are worried about launching a new service and being disapproved or penalized by the FSC,” says Kim. “So we need a safety net that can eliminate them. [fears]”

Kim added that apart from the basic standards needed to protect investors, South Korea should adopt a sandbox-like regulatory framework that allows innovative projects to thrive.

“Regulations should be minimal. Use them to stop embezzlement, money laundering and other crimes,” Kim said. “Regulation is not a good tool to promote the industry, so governments should also consider making large investments to build the industry.”


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