In a recent turn of events, South Korean officials have assumed a regulatory rather than a prohibitive position on cryptocurrency exchanges. Going forward, exchanges must comply with six guidelines that are meant to protect customers. If these conditions are not met, violators will be subject to enhanced penalties under existing law.
Setting a New Standard
The South Korean government is taking a new approach toward crypto exchanges. Just last week, officials were debating whether or not to ban exchanges due to the threat of malicious and fraudulent behavior.
Instead, they’ve decided to tackle deceptive trading through regulation rather than outlawing exchanges altogether. As originally reported by South Korean media outlets, the Korean government will amend existing regulations to include crypto exchanges and transactions.
The government defines cryptocurrency transactions as “storing, managing, acquiring, exchanging, trading, arranging, arbitrating and issuing virtual currency,” making it relevant to the existing legislation.
The proposed regulations are meant to insulate lawful users from possible fraudulent tactics that could compromise their funds.
The Six Conditions
In order for an exchange to operate legally in South Korea, it must adhere to the following six conditions:
- Customer funds must be stored separately from the exchange’s funds
- Exchanges must provide users with a thorough explanatory warning of investment risks
- Exchanges must confirm their users’ names and identities
- They must establish an adequate anti-money laundering system
- They must provide proper asset protection, such as dispersion of users’ cryptographic keys
- They must make all order-book bids public so as to increase transparency
As it stands now, violations of the existing law are punishable by up to 5 years of imprisonment or a fine up to 50 million won. The amended law would double these penalties, making any transgressors of the above conditions subject to a fine of up to 100 million won or up to 10 years of imprisonment.
Under the new statute, the government also hopes to regulate a number of off-exchange, day-to-day transaction scenarios. These include issuing credit using cryptocurrencies, using them to raise funds, and using them in multi-level and door-to-door sales, among other things.
Exchanges have responded positively to this news, giving no indication that they intend to fight the proposed legislation.
In a statement obtained by Reuters, for instance, BTC Korea.Com Co. stated that it planned to comply with the revised legislation and “actively cooperate to build a right set of rules.”
Sharing a similar sentiment, a representative of Bithumb, South Korea’s largest exchange, stated that “a right set of regulations will rather nurture the [virtual currency] market, and we would welcome that.” Bithumb believes that a healthy regulatory framework could lend credence to cryptocurrencies, transforming what many regard as a Ponzi scheme into a legitimate market.
One of the co-founders of Stellar Lumens, Joyce Kim, took to Twitter to announce the breaking developments, endorsing the regulations as “GOOD NEWS!”
BREAKING: Korean govt will regulate bitcoin exchanges but not ban them. Exchanges will have 6 reasonable requirements on KYC/AML, key storage, separation of fiat into 3rd party accounts, consumer warnings abt trading, transparency of orderbook. GOOD NEWS!https://t.co/6X5S2JBNol
— joyce kim (@joyce) December 12, 2017
A bill containing the regulatory proposals will soon head to South Korea’s National Assembly. When and if the law is enacted, exchanges will have a six-month grace period to adhere to the new rules.