Following multiple hack reports, the South Korean government explains how it will strengthen the regulatory framework for cryptocurrency exchanges. A bill has already been submitted which imposes multiple new obligations on crypto exchanges.
Also read: Yahoo! Japan Confirms Entrance Into the Crypto Space
Korean Government’s Solution
Following recent reports of multiple security breaches at cryptocurrency exchanges, the South Korean government has revealed the details of the new bill to regulate crypto exchanges, local media report.
On Tuesday, June 19, South Korea’s second largest crypto exchange, Bithumb, posted a notice on its website and tweeted that about 35 billion won (~US$31 million) worth of cryptocurrencies was stolen. However, the exchange promptly removed the notice and deleted its tweets about the theft shortly afterward. The Bithumb incident came just 10 days after the country’s seventh largest crypto exchange, Coinrail, claimed that it was hacked on June 10, with the damage estimated at approximately $40 million.
Choi Jong-ku, Chairman of the country’s top financial regulator, the Financial Services Commissions (FSC), commented on the Bithumb news on Wednesday. He was quoted by Newsis saying:
In order to prevent this, we need to make the [crypto] transaction system stable and strengthen the protections of the traders by virtual currency handling businesses.
He explained that an amendment bill to the Act on Reporting and Using Specified Financial Transaction Information has already been submitted to the National Assembly in order to achieve this.
Crypto exchanges are currently “in the blind spot” of the Korean regulators, Newspim wrote, adding that they are “expected to be monitored by the financial authorities through the ‘report system’.” The publication elaborated, “This will block illegal money laundering using virtual currency exchanges and enhance the rules for transactions with commercial banks in cooperative relations such as opening virtual accounts.”
The Revised Bill
According to the proposed bill, the government “will define a virtual currency exchange as a virtual currency handling business,” the publication described, noting that the obligation to prevent money laundering will be imposed on all crypto handling businesses.
“If the bill passes the National Assembly, a virtual currency exchange must be obliged to report to the Financial Intelligence Unit (FIU) as a virtual currency handling business and be regularly supervised by the FIU,” the news outlet detailed. If the authorities find any illegal activities, then the Financial Supervisory Service (FSS) and the FIU will inspect and investigate them.
Son Sung-eun, FIU’s Director of Planning and Cooperation Team, was quoted saying:
We could not afford to let virtual currency centers become a hotbed for money laundering.
The proposed amendment also obligates all financial companies to “preserve financial transaction data and information related to the implementation of obligatory transaction reporting, high cash transaction reporting, customer confirmation, etc. for five years.”
Penalties and Punishments
Sanctions will be imposed on any crypto businesses in violation of or failing to comply with the financial regulators’ rules. They include “recommending the dismissal of officers at the same level as banks and securities companies, suspending business operations, warning of institutions, and corrective orders.”
FIU manager Kim Ji-woong explained one particular disciplinary measure:
The defendant’s fines will be charged at 30 million won [~$27,077] if the virtual currency provider does not go through the customer verification process or does not check or report suspicious transactions.
Hong Sung-ki, Vice Director of Virtual Currency Countermeasures, was quoted by Hankyung reiterating that the enactment of this bill “does not mean that virtual currency exchanges are legally recognized and absorbed into the system.”
What do you think of the Korean government’s plans for crypto exchanges? Let us know in the comments section below.
Images courtesy of Shutterstock and the Korean government.
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