Adding to its recent regulatory efforts, the South Korean government has drafted further legislation to rein in the emerging cryptocurrency market. These developments follow a batch of proposed regulations meant to safeguard investors from potentially dangerous exchange practices. It appears that the new legislation has a similar goal, as it looks to protect the public from crypto’s general volatility.
A Week of Regulations
On December 13, the South Korean government concluded an emergency meeting with an updated legislative game plan for handling cryptocurrencies. The meeting, chaired by Hong Nam-ki, the minister of the Office for Government Policy and Coordination, was called in order to establish further regulatory frameworks for a surging crypto market.
As reported by South Korean media outlet Hankyoreh, the new regulations aim to protect investors from the market’s pitfalls, taking particular aim at minors and foreigners. The leaked legislation does the following:
- Bars unaccredited investors from handling highly volatile currencies
- Prevents regulated exchanges from acting as speculative platforms for unaccredited investors
- Prevents banks and exchanges from allowing minors and foreigners to open accounts for cryptocurrency trading
- Temporarily prevents institutional and retail investors from investing in cryptocurrencies
The South Korean government also hinted that it may tax capital gains from crypto trading in the future as well.
Of the above regulations, the first two seem a bit vague. The statutes will no doubt need clarification, for as of right now, there are no tangible guidelines as to how the government intends to shield unaccredited investors from volatility and speculation.
The final two propositions, however, send a very clear message. South Korea wants to keep big money out of crypto for now, as the introduction of brand-name investors would only fuel the market’s volatility.
The government also wants to keep foreigners and minors from using South Korean exchanges. Back in November, South Korea’s prime minister Lee Nak-yeon issued a statement regarding teenagers’ and students’ increasing interest in cryptocurrencies. He believes that their involvement “can lead to serious distortion or social pathological phenomena, if left unaddressed,” and the attempt to curtail underage investing is no doubt a response to these concerns. The ban on foreigners is also noteworthy, as a healthy portion of the trading volume on Korean exchanges comes from China, where cryptocurrency trading is illegal.
In Light of Recent Events
Earlier this week, South Korea issued a statement containing new rules for exchanges to follow. This regulatory framework states that exchanges must warn users of investment risks, provide proper asset protection, disclose order book bids to increase transparency, confirm user identities, and implement anti-money laundering measures. If exchanges fail to comply with these rules, they will be subject to penalties.
The increase in regulatory measures comes at a time when cryptocurrency has stepped into the public spotlight, and this spotlight brings attention to more than just Bitcoin’s price. Korean media outlets recently stirred up worries over Bitcoin Platinum, a proposed fork accused of being a scam orchestrated by a Korean teenager. Similar concerns over potentially fraudulent projects led to the South Korean government prohibiting domestic ICOs.
Paving the Way Forward
With its new legislation, the South Korean government aims “to prevent a general public without expertise from suffering losses by participating in virtual currency investments that have massive fluctuations.”
The South Korean government had shied away from establishing clear regulations over the past year, but the market’s recent growth has curbed its hesitancy. A spokesperson for South Korea’s crypto task force issued a statement indicating that government officials can no longer put off drafting regulations:
The South Korean government has no other choice but to follow the regulatory frameworks and trends established by other leading governments. While there certainly exists a negative reputation attached to the cryptocurrencies, the government’s stance is to allow what has to be allowed, for the benefit of the South Korean market.
As we approach the start of 2018, leading markets like South Korea, Japan, and the US have all introduced regulations affecting the crypto-sphere. So long as they look to protect investor interests, proactive approaches to regulation may help foster a healthy market going forward.