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Fundamentals for the incorporation of virtual assets such as cryptocurrency into the system

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작성일 2020-05-07 18:14

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With the passage of the National Assembly's plenary session on March 5 of the revised law on the reporting and use of certain financial transaction information (implemented in March 2021) expectations are growing that legal ambiguity regarding "Virtual Assets (VA)" and "VASP" will be resolved. In the domestic legal system, there has been constant criticism that financial authorities' regulatory measures on cryptocurrency are not effective because there is no clear legal definition or basis to embrace virtual assets such as cryptocurrency.


In the revision, virtual assets were defined as "electronic certificates that have economic value and can be traded or transferred electronically" while imposing anti-money Laundering system (AML) and anti-terrorism financing obligations on cryptocurrency exchanges. As a result, experts say that the government has set the stage for the inclusion of cryptocurrency into the system.

 


However, the revised bill also includes strict requirements for establishing virtual asset operators and strengthening supervision and control of financial authorities, which is expected to cause mixed feelings depending on the size of the business.


The revision stipulated the processing of business reports by the Financial Intelligence Unit (FIU) of the Financial Services Commission as a requirement for real-name verification deposit and withdrawal account services (virtual currency transaction real-name system) for virtual asset operators. It actually operates close to the permit system by choosing a "report that requires processing" rather than a self-financing report.


Requirements for establishing a 'virtual asset operator',

It's about supervision and control.


Currently, there are only four cryptocurrency exchanges -- Upbit, Bithumb, CoinOne and Korbit -- that have signed contracts with commercial banks for deposit and withdrawal accounts. Most small and medium-sized exchanges have been operating so-called "hive accounts" that have multiple personal accounts under them after being issued semi-corporate accounts. Such exchanges are likely to not receive real-name verification and withdrawal accounts from banks and other financial companies in the future. Banks are also reluctant to issue real-name verification and withdrawal accounts for existing "hive account operators" as they are subject to the "duty to strengthen anti-money laundering" following the revision of the specific financial information law.


ISMS requirements are also formidable. It usually takes more than a year to obtain certification alone, and it costs hundreds of millions of won every year to build and manage the system, so it is a big burden for small and medium-sized businesses that need to obtain new certification. Some argue that it will eventually be absorbed into the large exchange through mergers and acquisitions, but even this is not expected to be easy.


Operator, virtually 0 authorizations

There will be mixed feelings depending on the size.


"There is no incentive for large exchanges with physical and human infrastructure to take over small exchanges that lack technical skills," said Park Joo-hyun, 41-year-old main lawyer for the law firm Hwang Geum-ryul. "They will naturally fall out of the market following measures to enhance transparency in virtual asset transactions that are regulated by the revision of the Specific Financial Information Act."


Controversy is also expected over the scope of virtual asset operators. The scope of virtual asset operators is delegated to the Enforcement Decree of the Specific Financial Information Act, and if virtual asset operators (such as deposit service providers) who do not deal with cash are also included in the scope of the regulation and have to have real-name verification deposit accounts, critics say it is excessive regulation.


A lawyer in Seocho-dong pointed out, "Although the outline of the enforcement ordinance has not yet been revealed, the transaction itself could shrink if the scope of virtual asset operators subject to the law is expanded," and "If the virtual asset exchange's real name verification account alone can achieve its goal of enhancing transparency, regulations on other operators seem unnecessary at first glance."


Guest reporter Kwon Oh-hoon (ohkwon@lawtimes.co.kr)

Source: https://www.lawtimes.co.kr/Legal-News/Legal-News-View?serial=160987

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