South Korea: Promoting A New Bill To Pass The FATF exam
RegulationBit News Today3 min read
South Korea is stepping up efforts to introduce regulations for cryptocurrency in line with international guidelines. Regulators have agreed to apply the standards of the Financial Action Task Force (FATF) to cryptocurrencies for combating money laundering and terrorism financing. Taking note of the issue, lawmakers introduced multiple bills in the National Assembly aimed at placing anti-money laundering obligations directly on cryptocurrency exchanges.
Legislation under consideration
On 21 March 2018, the ruling Democratic Party introduced a bill that would essentially turn the FSC's guidelines into law. Under the proposed regulatory framework, digital currency exchanges would have to register with South Korea’s Financial Intelligence Unit, an FSC sub-agency that monitors transaction flows to prevent money laundering and attempts to bypass capital controls. These platforms would also have to meet "Know Your Customer" and anti-money laundering requirements similar to those imposed on banks.
South Korea's anti-money laundering rules for cryptocurrencies are expected to tighten and broaden in scope. The FATF recommendations and glossary were amended to clarify to which businesses and activities requirements apply in the case of virtual assets. Exchanges and wallet providers will have to enforce controls against money laundering and terrorism financing, while also being registered or licensed and monitored by domestic regulators. Toughening these standards forms part of a broader strategy by the FATF to keep virtual asset operations from being used for money laundering and terrorist financing.
Cryptocurrency boom and emergency government oversights
Thanks to this favourable environment, cryptocurrencies saw an upsurge of investment in South Korea beginning in 2017. South Korea accounts for the world’s third-largest bitcoin trading volume and is home to several of the largest cryptocurrency exchanges by transaction volume. South Korea had not passed any specific legislation or rules directly addressing activities such as cryptocurrency mining, trading, establishing exchanges, or initial coin offerings. This regulatory void, alongside rising speculative demand spurred by a sudden jump in cryptocurrency values, caused trading volumes in South Korea to surge starting in the summer of 2017.
The government announced emergency measures on December 13, 2017, barring minors, foreigners, and financial institutions from domestic exchanges, after having instructed banks on September 9, 2017, to halt unverified transactions, and followed by a ban on virtual bank accounts on December 28, 2017. By requiring the sameness of user and exchange bank accounts, policymakers aimed to ensure banking institutions have greater access to user personal information and transaction history.
Anti-money laundering watchdog's rules
On January 30, 2018, the Korea Financial Intelligence Unit (KoFIU) introduced guidelines to prevent cryptocurrencies from being used for money laundering. This marked the first time a definition of cryptocurrency appeared in South Korean regulations, creating a reference likely to be used in future rules.
As a follow-up step, the Financial Services Commission established a real-name transaction framework for cryptocurrencies and announced it would implement the anti-money laundering guidelines for one year beginning January 30, 2018. While banks were most directly affected by the Guidelines through crypto-to-cash conversions via linked bank accounts, the guidelines were limited in regulating money laundering carried out within the cryptocurrency exchanges themselves.
Based on April inspections of bank compliance, the KoFIU proposed a revision to the Guidelines to address insufficiencies related with their implementation. The revised Guidelines, approved on June 27, stipulate that financial companies shall immediately reject or cease transactions with cryptocurrency exchanges when they report such transactions to the KoFIU as suspicious.
Guidelines' limits push for regulations targeting exchanges
Plans to soften digital currency regulations announced in May 2018 point to increasing cross-border cooperation and enforcement activities among G20 member nations.
On the other hand, reflecting a tangible impact on the market, the volume of cryptocurrency transactions in Korea has declined, with trading activity slowing down since the promulgation of the Guidelines. South Korea has championed applying anti-money laundering obligations and rules to cryptocurrency operations. Regulators have highlighted these standards at the last G20 meeting in an overview of the Korean cryptocurrency market and the relevant AML regime.
