The act requires all VASPs to register with regulators and partner with a single bank for deposits and withdrawals. This linkage of virtual wallets and real-world bank accounts – both of which must be registered to a user’s actual name – will make it easy for regulators to track the movement of illicit funds.
South Korean lawmakers voted Thursday to place tough new requirements on cryptocurrency exchanges, adding legitimacy to the country’s sprawling crypto economy – and potentially triggering a market consolidation down the road.
As reported by CoinDesk Korea, the legislation – an amendment to Korea’s existing Financial Information Act – shores up South Korea’s anti-money-laundering (AML) and counter-terrorism financing (CFT) framework for virtual asset service providers (VASPs).
Additionally, VASPs must get their systems certified by the Korean Internet Security Agency, a costly and often lengthy process that only six companies and exchanges have so far cleared.
That could squeeze out Korea’s smaller players who cannot afford to take on the regulatory burden, CoinDesk Korea reports. Exchanges may attempt to consolidate, raising funds and banding together to meet the new requirements.
But it could also be a death knell for gray-area projects trying to take advantage of investors, particularly initial coin offerings (ICO), which must follow the registration requirements under the new law.
“If this passes in Korea, blockchain companies and cryptocurrency will officially be regulated but accepted in Korea. Bad news for scammy ICOs and exchanges. Good news for blockchain professionals in Korea”, tweeted Doo Wan Nam, who works with MakerDAO.
The legislation is the latest example of a country working to comply with new global AML and CFT directives in the virtual asset space. Ever since the Financial Action Task Force (FATF) issued guidelines for policing VASPs, regulators have been racing to clamp down on potential illicit activity in their jurisdiction.
South Korea’s president has 15 days to sign the amendment into law. Some provisions will take effect one year after it’s signed, and the full law will come into effect six months after that.
South Korean Central Bank to Organize a CBDC Task Force
South Korea’s central bank is organizing a task force to research central bank digital currencies (CBDCs).Announced in a Dec. 26 report titled «Monetary Policy for 2020”, the Bank of Korea will hire experts to study the effects of distributed ledgers, cryptocurrencies and CBDCs on financial settlements and security. The group will also “keep an eye” on other countries’ experiments with CBDCs.
The task force could be formed as early as January 2020, reports CoinDesk Korea.
In the past year, the U.S. Federal Reserve and the European Central Bank announced investigations into digital replacements for cash, as the People’s Bank of China readies to pilot its “digital yuan” in 2020. State-backed digital currencies may improve international and internal settlements as well as mitigate fraud, say backers.
“The bank will enact assessment principles, reflecting domestic conditions, to improve the effectiveness of its oversight of the payment and settlement systems”, bank officials said in the document.
Bank of Korea’s earlier research into digital currencies has come and gone. A previous task force was disbanded in January 2019 after a year of studying virtual currencies and CBDCs.
The bank found that CBDCs could adversely affect the demand for traditional banking services, which could impact financial stability.
In October, Hong Kyung-sik, the head of the Bank of Korea’s Banking and Finance Bureau, said an advanced economy with a credit system would not benefit from CBDCs.
Still, the bank hired an expert to study cryptocurrencies this past September.
According to the Bank for International Settlements, a “majority” of central banks in developed and emerging economies (of 63 surveyed) are researching CBDCs.
