Regulations Needed
It has been found that the Bitcoin trading volume of Korea stood third in the world.
According to Bitcoin-specialized media CryptoCoinsNews and Coin Telegraph on September 24, the daily Bitcoin trading volume of Korea reached 15,408 Bitcoin (about 65.1 billion won or US$58 million) on September 21. The overall market share of the Korean won was 5.55%, weighing those of the Chinese yuan (4.97%) and the euro (4.77%). First and second place went to the Japanese yen (49.13%) and the US dollar (32.73%).
CryptoCoinsNews analyzed that the results stemmed from the fact that "the volume of transactions in China's virtual money market moved to Japan and Korea." China warned of the dangers of virtual currencies early this month, ordered the major virtual currency exchanges to cease operations and banned officials from leaving China.
Korea's virtual currency trading market is growing rapidly despite a “bubble controversy.” The daily trading volume of Bithumb, Korea's largest virtual currency exchange, towered over 2 trillion won (US$1.8 billion), eclipsing the KOSDAQ market’s.
As a result, the National Assembly is taking steps to devise measures to reduce possibilities of crime and security accidents and to protect investors such as the introduction of a virtual currency trading license system. However, there is also concern that if strong regulations such as those of China are made, it can significantly dampen the virtual currency market.
Financial Authorities to Strengthen Regulations
As there are signs of digital currency speculation, however, the financial regulators will strengthen regulations on the trade of digital currencies to protect consumers.
The Financial Supervisory Commission (FSC) announced on September 3 that it held a joint task force meeting with digital currency-related institutions and regulators, such as the Korea Fair Trade Commission (KFTC) and the National Tax Service (NTS), on the 1st to promote the viable measures within the current legal boundaries and come up with the measures that narrow blind areas.
Accordingly, the financial authorities plan to strengthen the user authentication procedures and banks’ suspicious transaction report systems when trading digital currencies in order to secure transparency of trading and protect customers. Also, they will tighten the monitoring on petty overseas remittance service providers who use digital currencies as means to transfer money abroad in cooperation with related agencies. In addition, the financial regulators plan to introduce regulations on domestic trading of digital currencies, including the revision of Act on Reporting and Use of Certain Financial Transaction Information considering the trend of major countries strengthening the anti-money laundering law.
They will also recommend agents in digital currency exchanges include consumer protection measures, such as deposits for consumer assets, in their voluntary restrictions.
The financial authorities will also improve laws and systems. An official from the FSC said, “We will clearly state the foundations of the Act on the Regulation of Conducting Fund-Raising Business Without Permission for illegal fund-raising impersonating digital currency investment and strengthen levels of punishment. We will expand the application range of Act on the Regulation of Conducting Fund-Raising Business Without Permission and come up with regulations on digital currency trading by establishing the law.”
They will punish initial coin offering (ICO) that raises funds in the form of stock issuance using digital currencies permitted in some countries, including Switzerland, for violating the capital market act. Kim Yong-beom, the secretary-general of the FSC who chaired the task force meeting, said, “At this point, digital currencies cannot be considered money and currency not financial products.”
In addition, they will thoroughly examine customer information leakages caused by hacking and take severe disciplinary action for violations. They are also planning to examine the current conditions of digital currency traders and establish joint inspection systems with the KFTC, prosecution, police and NTS.
An official from the KFTC said, “For issues that haven’t formed the international consensus such as the character of digital currency traders, permission and taxation, we will come up with counterplans by thoroughly analyzing the discussion and regulation trends of other countries and international organizations and fully discussing them.”
Cracking Down Multi-level Marketing First
In the meantime, South Korean government will crack down on illegal financial “pyramid” (a multilevel marketing) scams that trade digital currencies. This is because the digital currencies are not goods so cannot be considered door-to-door selling business. There is also concerns over consumer damages as the government and financial institutions cannot guarantee the value of digital currencies.
According to the government on September 7, 10 relevant ministries, such as the Ministry of Justice, Ministry of Strategy and Finance, Financial Services Commission (FSC) and Police, had a joint meeting chaired by FSC Vice Chairman Kim Yong-beom. At the meeting, they decided to crack down on financial pyramids that trade digital currencies in order to prevent consumer damages caused by illegal transactions and similar misconducts making ill use of digital currencies such as money laundering and tax evasion.
The government says it is illegal to create new digital currencies because the value of digital currencies are not guaranteed by the government or financial institutions. To this end, the government has designated from September to December as an intensive illegal financial pyramid scam crackdown period.
It plans to grasp the trend of illegal digital currency pyramid scams through related organizations, including the Mutual Aid Cooperative & Consumer and Korea Special Sales Financial Cooperative Association, and then form a joint crackdown team with related agencies such as the Police, FSC and Ministry of Justice. To this end, the government will run “intensive reporting period” on websites of each mutual aid association so that consumers can report their damages.
The government will charge those who create digital currencies in the form of stock issuance with violation of the capital market law and punish them and share the related data with foreign law enforcement authorities, including Interpol, according to the Act on Reporting and Use of Certain Financial Transaction Information when they use digital currencies in tax evasion and money laundering.
The government has required financial institutions to immediately report possible digital currency scams and take all the measure possible according to the current law this month, including identification and authorizations of account holders.
It also plans to review the law related to the multilevel marketing and regulate digital currency transactions in the long term and hold a joint task force meeting with relevant ministries to discuss digital currency countermeasures every quarter.