The Korean Financial Intelligence Unit (KIFU) has decided to take necessary actions in order to protect illegal activities from percolating across its cryptocurrency space. Since crypto medium has been used by various behind-the-door factors in order to perform practices like money laundering and terrorist financing, government of Korea has decided to legitimize the crypto world and put exchanges under proper check and balance employing a framework similar to the regulatory framework of the commercial banks across the country.
At the Policy Advisory Council meeting, which was held last month, Kim Geun-ik, the director of KIFU clearly stated that there need to be more strict regulations to oversee the workflow of banks and international finance sector, including the platform of cryptocurrency. A bill has been proposed to monitor crypto exchanges across the country and the model that is being employed for the regulations of cryptocurrency exchanges is similar to the existing model in effect for regulating central banks.
Anti-money laundering (AML) policies will be imposed on the cryptocurrency exchanges as they have been implemented in various countries like Australia, United Kingdom, Japan and Canada. The exchanges will also be bound to give their reports to the government regarding security measures, internal management process, Know Your Customer (KYC), transactions monitoring etc. The service provided by crypto exchanges will be on the same level as major financial providers and commercial banks across the country.
The issue of terrorist using the medium of crytocurrencies to implement nefarious activities is also being handled by the bill proposed for regulating the crypto agencies and exchanges. KIFU stated publicly that:
The KFIU will follow the movement of leading economies such as the US to prevent money laundering and terrorism financing with more rigorous verification processes for large transactions and monitoring of users.
Although the bill has not been passed as of yet in the Congress, KIFU is making sure that everything goes smoothly and according to the plan with regards to its passing. The issues of money laundering and illegal terrorist activities have engulfed and chained the country as a whole so it is very likely the bill will get passed. A KIFU representative stated in the public statement that:
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.
In the recent past, we have also seen Korea go through two hacks that took place on some major cryptocurrency exchanges of the country. These hacks have exposed the vulnerability and threats that the crypto market pose to its investors. Issues like money laundering, stealing, tax evasion and terrorist financing have always kept investors on their back foot regarding the market. The need for a regulatory framework is inevitable.
Since crypto exchanges of the country do not operate under regulations of the Financial Services Commission, the market has been exposed to the issues of illegal activities. The Head of the Virtual Currency Response team at South Korea’s Financial Service Commission (FSC) stated in an interview to bloomberg that:
While crypto markets have seen rapid growth, such trading platforms don’t seem to be well-enough prepared in terms of security. We’re trying to legislate the most urgent and important things first, aiming for money-laundering prevention and investor protection. The bill should be passed as soon as possible.
Although the government is legitimizing it as a finance sector to prevent it from illegal activities, it is not endorsed by the government. Hong also stated regarding entering the world of cryptocurrency that; “I wouldn’t recommend putting money in cryptocurrencies”.
The Financial Services Commission (FSC) is actively backing this proposal of regulating exchanges across the country, as in the recent past, a document was published by the FSC elaborating its intent of eradicating all the illegal activities and exploitation from its market of cryptocurrency. Certain measures were presented to give a framework, required to keep the market clean and secure. It was stated in the document that the steps mentioned are aimed to:
…reduce room for cryptocurrency transactions to be exploited for illegal activities, such as crimes, money laundering and tax evasion.
Korean market have largely been exposed to such activities and the need of such regulations will mitigate illegal practices and move the market towards more stability and security. Opposed to the public perception, blockchain technology should set the people free of all the regulatory actions imposed by the authorities, this will put exchanges across the country under the supervision of the FSC. But in result, this will likely prove to be beneficial for the crypto market of Korea, world’s third largest crypto market after United States and Japan, as more and more investors will be interested to invest free from all the concerns of illegal activities percolating across the crypto space.
Regarding the market space of Korea, Vijay Ayyar, the Singapore-based head of business development at Luno, a cryptocurrency exchange, stated that:
How ill-prepared a lot of the exchanges still are across large markets. The overall market is seeing a lot of regulatory action and incidents like these will only hasten the process.
All in all, as the cryptocurrency world is legitimized by the government and put under the regulations from the Financial Services Commission, this Korean market is expected to see a sudden boom in its growth. As a result of this, more and more capital will be flowing in the Korean market, ultimately strengthening and securing its own local crypto market and global market as a whole.