A National Assembly subcommittee on Thursday finally passed a revision to the “Act on Reporting and Using Specified Financial Transaction Information,” a move that could bring the cryptocurrency industry into Korea’s mainstream.

The “Act on Reporting and Using Specified Financial Transaction Information,” a.k.a. The Financial Transactions Reporting Act (FTRA), is a law that imposes anti-money laundering obligations on financial institutions.

The act in question

According to Coindesk Korea, TokenPost and others, the revision to the act would require cryptocurrency exchanges to register with the Financial Services Commission’s Financial Intelligence Unit (FIU). The heads of cryptocurrency exchanges who fail to register could face up to five years in prison or up to KRW 50 million in fines.

The bill defines cryptocurrency as “virtual assets” and cryptocurrency exchanges as “virtual asset service providers,” or VASPs. The bill initially referred to exchanges as something that translates as “businesses that deal in virtual assets,” but this was changed because of negative connotations.

VASPs would include not only exchanges, but also wallets, custody services and all other companies that deal in virtual assets, including companies that engage in ICOs (note: CoinDesk’s list dates from Oct. 30, so it may not apply to the version of the act that was passed on Thursday. This is something worth watching, as satisfying AML, CFT, KYC and other legal requirements as VASPs might force ICO companies to endure serious financial costs. Anyway, this is something that will no doubt be clarified in the days and weeks to come).

The revision also requires VASPs to have The FIU can reject the applicants without such accounts.

This real name account requirement had earned the ire of opposition politicians and some quarters of the cryptocurrency industry, who expressed concern that the requirement would force exchanges without real name virtual accounts to close, hurting the industry in the process. 

They also worry that the requirement goes beyond the FAFT guidelines and potentially enables bodies like the FIU to enforce “shadow regulations.”

To help alleviate this concern, the subcommittee agreed to work with the rest of the parliament and the Financial Service Commission to craft conditions for the issuance of real name virtual accounts. These conditions will be included in the enforcement ordinance of the revised act.

Only four exchanges — Bithumb, Upbit, Corbit, and Coinone — have real name virtual accounts. No bank has signed a deal to provide real name virtual accounts to another exchange since the government moved to end anonymous trading in January 2018.

If issuance standards are established, it would make it easier for exchanges without virtual accounts to get them.

Another controversial article mandating information security management system (ISMS) certification was also included, but exchanges that fail their certification will be given a grace period to re-acquire certification.

First step to legalization

Assuming the revised act makes it out of the National Assembly (see below), the legislation would bring cryptocurrency-related industries into the institutional order by granting them legal status.

“Although it is a regulatory bill (not a law for activation), institutionalization for cryptocurrency has been prepared for the first time. We expect it to serve as the first step to protect consumers and create a stable market,” said Jae-jin Kim, secretary general of the Korea Blockchain Association.

Exchanges and other VASPs have been operating in a regulatory vacuum, but perhaps not for much longer. They may have to assume the same anti-laundering requirements as banks and other traditional financial institutions, but at least they’ll know where they stand, legally speaking.

And it might help improve the image of the cryptocurrency industry to boot.

Before we get too excited, it should be noted that the revised act still needs to pass through two parliamentary committees and a plenary session. According to CoinDesk Korea, the subcommittee’s passage of the revision has made it much more likely that lawmakers will pass a final revision before the 20th National Assembly ends in June.

Still, some cryptocurrency industry insiders are taking a wait-and-see approach. An official at one exchange told The BChain that while the industry views the passage as a full-scale beginning and welcomed the relaxation of certain parts of the act, they still have to watch the process of future parliamentary debates on the act’s execution ordinance and other issues.

As The Iconist reported earlier, pressure from the government had been building on lawmakers to bring cryptocurrency into the fold. Last month, a presidential committee recommended giving cryptocurrency legal status. More recently, the head of the Financial Services Commission attempted to light a fire under the collective backside of the parliament by warning lawmakers that the failure to quickly pass revisions to the FTRA could cause problems in Korea’s FAFT review.