Korea Takes Next Steps Towards Crypto Regulation

The chairman of the Financial Services Commission (FSC), one of Korea’s top financial watchdogs, told lawmakers on Oct. 26 that cryptocurrency exchanges should face no difficulties with local banks.

“The FSC’s Choi Jong-Ku clarified that banking support would be provided as long as exchanges have adequate anti-money-laundering (AML) safeguards in place and apply robust know-your-customer (KYC) checks,” reports Marie Huillet at Cointelegraph. “In particular, South Korean banks could offer ‘virtual’ accounts to crypto exchanges that provide an instant system to withdraw and deposit funds, allowing the crypto exchange to conduct those operations without having to directly withdraw and deposit from an actual bank account.”

There was much rejoicing. At least on the part of the Korea Blockchain Association.

Choi wasn’t always so supportive. You’ll recall that in January, when the FSC and Financial Supervisory Service launched a probe of six local banks that offered crypto accounts to clients (i.e., most of Korea’s big banks), the chairman told reporters, “Virtual currency is currently unable to function as a means of payment and it is being used for illegal purposes like money laundering, scams and fraudulent investor operations. The side effects have been severe, leading to hacking problems at the institutions that handle cryptocurrency and an unreasonable spike in speculation.”

Even just last month, on Oct. 11, he told the National Assembly, “The government does not deny the potential of the blockchain industry. But I think we should not equate the cryptocurrency trading business with the blockchain industry.” He also reaffirmed his opposition – at least at the time – to legalizing ICOs, telling lawmakers that ICOs “bring uncertainty and the damage they can cause is too serious and obvious.”

Interestingly, on Oct. 29 – just three days after Choi’s most recent statement – Seoul Central District Court took Nonghyup Bank to the proverbial woodshed for unfairly terminating its relationship with Coinis Exchange. In severing its relationship with the crypto exchange, the bank had cited… the FSC’s anti-laundering guidelines. The court, however, ruled that Nonghyup had failed to follow due course, nor did it provide evidence that Coinis had breached guidelines.

The case marked the first time in Korea a crypto exchange had challenged a big bank for treating it unfairly. Kim Tae-lim, the attorney for Coinis Exchange, told reporters after the victory, “This case is significant in that it is a decision to point out that indiscriminate regulation against a virtual currency exchange should be avoided in the absence of legal grounds.”

All of this brings us to a recent column in the Korea Times by lawyer Choi Sun-min, a member of HMP Law’s Tech & Comms team. Comparing the current legal status of blockchain in Korea to the protagonists of Milan Kundera’s novel “The Unbearable Lightness of Being,” Choi examines the contradiction between technology and the law, between the love of freedom as offered by technology and the desire for safety as promised by regulation.

Choi writes:

“It has been over a year since the Korean government declared a full-blown negative opinion against cryptocurrencies last September, but there is still no actual law defining or regulating a cryptocurrency. Everyone wants to hear the voice of the government, even if cryptocurrencies were born in an attempt to escape the centralized government system of banking and finance. However, the government and the National Assembly remain silent. They want to promote blockchain and distributed ledger technology by words alone, without legislation. They love blockchain but hate cryptocurrency, even if the two can’t be separated. They are bound together in irony.”

Well, something to think about, at least.

Other Korean Crypto News