South Korea: Promoting A New Bill To Pass The FATF exam
A member of the Korean National Assembly’s Political Committee Kim SUN-DONG has developed and presented a new Bill under the name “the Digital Asset Trading Promotion Act”, which includes a comprehensive plan to establish guidelines for the development and promotion of blockchain technology, virtual currencies and crypto-exchanges, as well as the points to work out tax incentives, measures to combat hacker attacks and fraudulent transactions on the market. Moreover, the new Bill implies the establishment of a digital asset trading committee, which will be tasked with addressing issues such as creating standards and policies relating to crypto assets, as well as coordinating between relevant administrative bodies.
As we wrote earlier, the Korean government has high expectations of the DLT sector, the development of which can lead to solving the problems of unemployment and the national budget deficit. But to make it happen, it is necessary to create a regulated legal framework that will provide favorable conditions for blockchain projects. The author of the Bill points out that there is is a problem of business outflow abroad in the country, citing the example of the largest South Korean crypto-exchange Bithumb, which in October sold a 50% stake in the capital to the Singaporean BK Global Consortium.
As an example the lawmaker sets Japan, which has already developed a legislative framework for the institutionalization of operations with crypto assets, and the US, where investors and traders can trade derivatives having cryptocurrencies as underlying assets. He seems to talk about bitcoin futures, as the ETF is still under consideration by the SEC, and there is not much sense to expect its approval this year in light of the remaining categorical position the Chairman of the Commission Jay CLAYTON has.
As for the provisions of the new Bill, they define digital assets as virtual content with an apparent value, namely online money, points, game and virtual currencies. Herewith, operators dealing with them will be determined as digital asset trading companies. Such companies will have to undergo the FSC registration, during which the Commision will examine the availability of the necessary amount of capital, manpower, computerized systems and physical equipment. Setting a minimum amount of fund reserves of 3 bln won or $2.7 mln should minimize the risks of customers of these companies. Thus, in the case a crypto exchange get hacked and its users bear losses of their assets, the Bill implies that the exchange should take responsibility and compensate for the damage to traders.
By the way, the study of the South Korean financial authorities headed by the FSC shows that crypto exchanges are less vulnerable to risks of money laundering comparing to banks. On November 27 they published the results of their assessment of domestic financial companies’ risks. Despite having advanced systems against money laundering and terrorist financing, banks were found to be the most vulnerable to these risks, and it is so due to “the larger size of the banking sector and the innate characteristics of their products and services like trade financing, cash management service and forex trading”, - the report says.
Moreover, the study shows that cryptocurrencies are less exposed to risks of terrorism financing than traditional financial instruments. However, this does not negate the fact that transactions with virtual coins are at risk of money laundering, as the monitoring of such operations is very problematic due to their anonymous nature. Therefore, the Korean regulators had to add cryptocurrencies to the list of the main nine major factors that create money laundering risks.And if we take into account that in the period from January 2019 to February 2020, the FATF will assess South Korea for its compliance with international standards in the field of combating money laundering and terrorism financing, it becomes clear why the state is in a hurry to regulate the process of digital asset trading. Unlike Nigeria, where banks’ compliance with the FATF AML-standards and their right to close accounts of crypto companies can provoke a massive outflow of fiat funds of crypto companies to the shadow market into the hands of terrorists, South Korea seems to be more concerned about the following international financial restrictions and a decrease in its сredibility in the event of a poor assessment result. We can assume that the possible sanctions may be very serious as at the last summit in Argentina the G20 countries included into their joint declaration a provision about the regulation of the digital market for anti-money laundering and countering the financing of terrorism in line with FATF standards.
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