South Korea Passes Comprehensive Crypto Law
The South Korean National Assembly has introduced an amendment to its financial services act that will significantly improve the legal infrastructure for the crypto industry in the country.
According to a report from The News Asia, the amendment to the Act on Reporting and Use of Specific Financial Information passed on Mar. 5, but will have to be signed into law by President Jaein Moon in order to start the enactment process. The process, the report explained, will start one year from the date of signing and will be followed by a 6-month grace period. All entities affected by the law will most likely have to be in full compliance by September next year and will have ample time to transition into the new legal structure.
The news about the “legalization” of crypto trading in the country spread like wildfire, pushing the market into the green after a slight consolidation during the past week. However, multiple news outlets seem to have exaggerated the importance of the new amendment, calling it the “legalization of the crypto industry.”
It’s worth noting that trading or owning cryptocurrencies has never been illegal in South Korea, despite the fact that its market has been struggling. The amendment to the comprehensive law focusing on the country’s financial service providers has just clarified who gets to regulate the burgeoning new industry.
Until now, the KYC and AML processes required for cryptocurrency exchanges had to be done by banks that serviced them. The lack of clarity when it comes to dealing with the crypto industry meant banks usually refused to deal with crypto exchanges. Without a clear definition of what cryptocurrencies actually are or how cryptocurrency exchanges are actually classified, the risk of getting involved with such companies was too high for most Korean banks.
The newly passed amendment solves this by providing clear definitions and introducing a comprehensive guide as to which government entity is responsible for overseeing each part of the industry. All cryptocurrency companies can now obtain an information security management system (ISMS) certification, which is granted by the Korea Internet Security Agency (KISA).
While the certification itself can be very costly, the amendment removed the need for banks to act as an intermediary and put the control of the KYC and AML processes back into the hands of the exchanges.
The amendment follows more than two years of intensive debates, both within the National Assembly and KISA, about how to solve the problem of an unregulated blockchain market in the country.
South Korea is the latest country to take concrete steps to introduce more transparency into the crypto industry. While some have criticized the amendment for introducing higher taxes to crypto exchanges, others have celebrated the regulations for being clear and straightforward, albeit tight.
Earlier this week, the Supreme Court of India overturned a ban on cryptocurrency trading in the country. While cryptocurrency trading hasn’t been made “illegal” per se, the Reserve Bank of India (RBI) directed all banks under its jurisdiction were banned from providing services to people and entities dealing in virtual currencies.
Sources close to the matter revealed that RBI is planning to appeal the decision, as the central bank is worried that Wednesday’s court decision could “put the banking system at risk.”
The Supreme Court’s ruling, as the Korean National Assembly’s amendment, came as a result of extensive lobbying and petitions from the crypto industry.
We are yet to see whether more countries follow in India’s and South Korea’s footsteps and take concrete measures that both protect investors and serve the crypto industry. As the markets reacted positively to both of these measures, it’s clear that most welcome the recognition the industry has gotten from governments.