According to local sources including JoongAng, South Korea’s largest business and financial news publication, the South Korean Financial Services Commission (FSC) and other financial regulators will ban “any forms” of domestic initial coin offerings (ICOs) and bitcoin margin trading.
South Korea Bans ICOs, Creates Task Force
Earlier this month, the FSC revealed that it will crack down on ICOs offering securities to investors within South Korea. At the time, the South Korean government and its central bank expressed their concerns over potential fraud involving cryptocurrency.
But on September 29, the FSC and its vice chairman, Kim Yong-bum, announced that it will prohibit all forms of ICOs regardless of the legitimacy of projects and technologies. Kim also revealed the launch of a cryptocurrency-focused task force that will investigate ICOs and blockchain projects within the South Korean cryptocurrency market.
As of now, China and South Korea are the only countries to have banned ICOs and crowd sales of crypto tokens. While regulations for ICOs in the US market remain unclear, the US Securities and Exchange Commission has stated that ICOs which are “clearly not securities” will not be prohibited. For instance, Gil Penchina, a partner at IDG Ventures and Flight.vc, noted that ICOs like Civic, Filecoin, and Gnosis are not considered securities but rather credit for future usage, similar to prepaid gift cards.
Penchina wrote:
“Protocol-level tokens (Bitcoin, Ethereum, etc.) do not have any assets of any kind underlying them and remain far from the SEC’s current focus. Apps that give you a credit for future usage (Filecoin, Civic, Gnosis, etc.) are in my opinion still effectively pre-paid gift cards like an Amazon gift card, and are not covered by the SEC. I have no proof of this but the analogy is amazingly sound. Apps that “sell future income streams” now have two examples of SEC scrutiny, and I would expect more.”
In an interview with JoongAng, Kim Jin-hwa, the co-founder of Korbit, South Korea’s third largest cryptocurrency trading platform that was recently acquired by Nexon at a US$140 million valuation, stated that a nationwide ban on ICOs will restrict innovation and development within the South Korean blockchain space. Another cryptocurrency expert told JoongAng that South Korea’s blockchain industry will lag behind that of competing countries such as Japan.
However, whether or not South Korean investors will be able to participate in foreign ICOs remains unclear. JoongAng reported that the government will not restrict investment in ICO campaigns conducted by companies or organizations outside of South Korea.
Bitcoin Margin Trading to be Banned, KYC/AML Policies Tightened
The FSC will also impose a ban on bitcoin margin trading and enact tighter Know Your Customer (KYC) and anti-money laundering (AML) policies. One of the new regulations will limit South Koreans to one trading account per individual.
Notably, the South Korean government is taking a fundamentally different approach from China toward regulating the bitcoin exchange market. Unlike China, South Korea aims to foster growth in the cryptocurrency exchange market and provide a more robust ecosystem for investors. Already, the country’s Fair Trade Commission has actively investigated unfair terms and conditions, including restrictions on withdrawals.
