A few days ago South Korea issued new regulations specifically for crypto assets.
It was technically an amendment to the Financial Information Act which incorporates the recommendations of the G20 Financial Action Task Force (FATF) and which gave full and explicit legitimacy to the ownership and trading of virtual assets.
The new legislation will allow local authorities, i.e. the South Korean Financial Intelligence Unit (KoFIU), to supervise and monitor this relatively young industry, according to the Global Anti-Money Laundering (AML), Counter-Terrorism (CFT) and Know-Your-Customer (KYC) guidelines.
The act will be signed by the South Korean President within 15 days, will enter into force in 12 months, i.e. by March 2021, and will provide an additional 6-month grace period to comply with all requirements. Therefore, by September 2021 all requirements will have to be met.
With regard to Korean crypto exchanges, called Virtual Asset Service Providers (VASP), the new regulations require them to register an authorized bank account and report it to the National Financial Intelligence Unit (FIU). They must also obtain a security certificate to meet the new regulatory requirements.
VASPs will be the platforms involved in the sale, purchase, storage, exchange, transfer and management of cryptocurrencies, and in addition to exchanges, they also cover trusts, wallet custodial providers, and ICOs.
These AML and KYC procedures are difficult and expensive but were introduced as early as 2018. However, until now they had only been implemented by a few large exchanges in the country, and now they will be extended to all.
The security certificate that will be mandatory is the Information Security Management System (ISMS) of the Korea Internet & Security Agency (KISA).
Perhaps the main problem, however, will be the bank account, which has become mandatory for every South Korean crypto exchange, because it seems that local banks are reluctant to work with clients operating in this area. So far there would be only 4 Korean crypto exchanges with registered bank accounts at Korean banks:
In addition to these, only two others have ISMS certification:
The fact is that, should they not be able to do so and continue to provide their services, those in charge risk a prison sentence of 5 years, or a fine of 50 million Won.
The impact of the new crypto regulation in South Korea
The main crypto exchanges in the country already seem to comply with most of the new rules, but for many small exchanges, it may be very difficult to adapt.
South Korea is by far one of the states in the world with the largest use of crypto-currency, especially in the financial and speculative arena, so the government’s main concerns relate to potential scams and hacking, as well as price manipulation and fake volumes declared by exchanges.
For this reason, the government has been active since 2018 in an attempt to regulate this still very young sector, in which the self-regulation of exchanges has proved to be insufficient to drastically reduce the problems mentioned above.
In addition, the amendment officially recognizes under South Korean law the ownership and exchange of cryptocurrencies, which could significantly increase their attractiveness for institutional investors, for example.
Finally, it will provide legal protection to cryptocurrency owners by subjecting them to the same financial obligations as traditional assets.
Furthermore, South Korea is also one of the countries most affected by the Covid-19 coronavirus in the world. For several days it was second in the world for number of infected, behind only China, although in recent days it has been reached by Italy and Iran.
When comparing on Google Trends the searches in the country of the terms “bitcoin” and “coronavirus” it’s clear that since the end of January the searches on coronavirus have literally exploded, while those on bitcoin have been quite stable since July 2019.
It’s also curious that at the beginning of February, when the price of BTC was rising, there were several searches for the “bitcoin coronavirus” query, which then completely disappeared from the end of February.
It is worth noting that, on Bithumb, for example, BTC trading volumes in local currency decreased a lot in 2020, especially since the end of January. So it is possible that the viral emergency may have discouraged several Koreans from trading cryptocurrencies.
Trading volumes on LocalBitcoins
There was a curious peak during the week before the outbreak of the coronavirus emergency, after which volumes returned in line with the previous ones.
In fact, when measured in BTC they show a sharp drop in this 2020, with an average of only 3 BTC traded on a weekly basis.
However, it is possible that these low volumes may also be due to the fact that many Korean LocalBitcoins users may have chosen to use other platforms, after the recent restrictions introduced by the latter at the end of 2019.
Surely the emergency situation in South Korea is not helping the cryptocurrency market, reducing the interest among Koreans, although according to the latest news it may be in remission.
If this is the case, new regulations could lead to an increase in trading volumes, due to increased confidence in the platforms that provide trading services.