On August 6, 2019, the Financial Intelligence Unit (FIU) of the Financial Services Commission in South Korea revealed plans to institute direct regulations on cryptocurrency exchanges, local news source Business Korea reports. Up until now, FIU has often regulated exchanges indirectly through their banks.
Quoting an official with the FIU, Business Korea reported that the South Korean government will begin to issue licenses to cryptocurrency exchanges, in line with recommendations from the Financial Action Task Force (FATF), an international anti-money laundering watchdog.
“If an amendment to the Act on Reporting and Use of Certain Financial Transaction Information, which reflects the FATF’s international standards for cryptocurrencies, passes the National Assembly, it will be possible to prevent money laundering through cryptocurrencies,” Lee Tae-hoon, the head of administration and planning at the FIU, said.
He added that this approach could lead to effective crypto oversight, although it would need the buy-in of lawmakers.
Crypto compliance solutions provider Argos commented in a blog post that this regulation could involve the enforcement of the “travel rule,” a rule which would obligate cryptocurrency exchanges to share information regarding the parties in a transaction. Given that exchanges don’t always collect such information, Argos noted that it could become problematic.
A Growing Regulatory Trend
South Korea is not the only Asian country determined to hold its crypto sector on a tight leash. Japan could be changing its laws soon due to the incessant security breaches on its exchanges.
In July 2019, popular Japanese exchange Bitpoint lost around $32 million (3.5 billion yen) to hackers. The exchange noticed unauthorized access in its hot wallets, which led to the theft of a wide range of digital assets, including bitcoin and XRP.
Bitpoint eventually rallied from the hack and published its timetable for resuming services for users shortly afterward.
Regulators in Japan have been both passive and active when it comes to the crypto sector.
Japanese exchanges have been allowed to self regulate in the past, thanks to the activities of the Japan Virtual Currency Exchange Association (JVCEA), a body made up of exchanges that ensures the institution of industry-wide anti-money laundering and security standards. The government has taken a more active regulatory role in recent times.
In April 2019, Nikkei Asia Review reported that Japan’s Financial Services Authority (FSA) was cracking down on exchanges that offered anonymous transactions and had subpar identity verification infrastructure.
Still, the country hasn’t been able to stem the flow of hacks. South Korea simply doesn’t want to take the same chance with exchanges.