South Korean officials are adopting stricter rules to monitor the country’s cryptocurrency industry, from trading accounts in real names to verifying individuals who use cryptocurrencies for tax evasion. These procedures often require cryptocurrency companies to provide detailed customer data and transaction information to the appropriate authorities.
These strict measures often increase compliance costs for exchanges and other crypto service providers. Privacy concerns are another concern amid the volume of information provided to government agencies.
However, this strict regulatory climate did little to dampen enthusiasm for cryptocurrencies in South Korea. Cryptocurrency trading continues to gain momentum in the country, as stock exchange investors are lining up for a massive increase in stock prices amid the current surge in digital currency activity in the country.
Data from South Korea’s National Tax Service, or NTS, shows an increase in the number of cryptocurrency investors in the country over the past year. This increase in the number of market participants also led to an eight-fold increase in trading volume, so that the crypto arena recently outpaced the stock market, albeit temporarily, in daily trading volume.
Tightening cryptocurrency conditions in South Korea also came amid updated FATF cryptocurrency regulation guidance in the Financial Action Task Force. The IGC continues to advocate for an increase in restrictions on the crypto space based on the strict monitoring of central entities such as exchanges and custody services.
Private Finance Law
On March 25, updated cryptocurrency regulations will go into effect in accordance with the Reporting and Use of Certain Financial Transactions Act, often referred to as the Determined Financial Transaction Act, in South Korea. These new laws represent a major change in the nation’s Virtual Asset Provider (VASP) policy.
First, all VASPs – stock exchanges, managers, asset managers, and portfolio service providers – must be licensed to operate in the state. Stock markets should also maintain relationships with local banks to ensure that trading is mandatory in real name accounts.
For South Korean officials, the insistence on using the original cryptocurrency accounts is part of the effort to combat cryptocurrency money laundering. This rule requires the exchange to obtain and renew specific license approvals from lenders in the country.
By partnering with local banks and claiming accounts with real names, South Korean regulators and law enforcement agencies can access encrypted transaction data for a variety of investigation purposes. The country’s cryptocurrencies must comply with strict accounting standards under the new laws that come into effect at the end of March.
The Financial Intelligence Unit of Korea or the Financial Intelligence Unit – the South Korean Financial Services Commission division responsible for overseeing money laundering in the country’s financial sector – will oversee the activities of cryptocurrency companies. VASPs now have until September 24 to comply with the new reporting standards.
Exchanges, wallet providers, asset managers, and other crypto companies that fall under the VASP classification are required to report and report suspicious transactions to the Financial Intelligence Unit to pursue money laundering investigations. New VASPs wanting to work in the country must also register with the Financial Intelligence Unit before serving clients in South Korea.
Meanwhile, South Korea’s NTS is also focusing on the cryptocurrency space in its battle against tax evasion. However, with the cryptocurrency tax law not yet in effect, NTS is considering people trying to evade government taxes by hiding their wealth in digital assets.
NTS recently identified more than 2,400 people who had hidden more than $ 32 million in government assets. As part of the investigation, the tax department has requested customer data from the country’s major cryptocurrency exchanges and is even planning to conduct a deeper investigation into some of the participants in the tax evasion scheme.
Binance Korea halted operations in December 2020, less than a year after its initial launch. At the time, the platform identified low liquidity and low transaction volumes as the reason for its decision to close.
However, there was some speculation that inbound rules prohibiting the sharing of order books between cryptocurrency exchanges were the reason behind Binance’s decision to close the platform. Now with only a few days remaining before the new regulatory standard is introduced, OKEx has also shut down the platform in the country.