South Korea has been busy revising its cryptocurrency regulations. The regulators plan to ease the rules on crypto assets in line with G20 policies. While a new crypto classification system has been created, another government agency is conducting an on-site inspection of crypto exchanges following multiple hacks. In addition, the Bank of Korea has released a report with its view on using crypto as a means of payment.
Policy Easing
South Korea has been actively revising and updating its regulations for cryptocurrencies. The Korea Times reported last week that the country’s top financial regulator, the Financial Services Commission (FSC), has revised “its guidelines relating to ‘all activities’ of Korea’s leading cryptocurrency exchange operators.”
Furthermore, “financial regulators plan to ease rules on crypto-based assets in line with policies initiated by G20 nations to establish unified regulations,” the publication detailed.
However, an FSC official told the news outlet that “Any major reversal in policies is unlikely.” Specifically, the policy change will not affect the way cryptocurrencies are classified for regulatory purposes. “The administration earlier classified cryptocurrencies as ‘non-financial products’ due to their speculative nature,” the news outlet conveyed, emphasizing:
The FSC and FSS [Financial Supervisory Service] will not change the government’s stance on crypto or digital assets as it’s difficult to value them as ‘financial assets’.
New Crypto Classification System
The South Korean Ministry of Strategy and Finance’s Statistics Korea, responsible for statistics in the country, has created a classification system for cryptocurrency operators and other blockchain-related entities.
Korean Regulations Update: Policy Easing, New Crypto Classification, Central Bank ReportSedaily explained that Statistics Korea has been gathering comments on the new classification system, which will be reviewed by the National Statistical Commission Policy Subcommittee on July 11. The official results will be announced on the 25th. The publication detailed:
Cryptocurrency exchanges such as Bithumb and Upbit are expected to be officially classified as crypto asset brokers after the government’s current title of ‘virtual currency handler’ is removed…The blockchain industry will be managed as a formal industry, starting with the government’s industrial classification, and conducting surveys and statistics.
Specifically, the news outlet added that “Blockchain platforms such as EOS and Ethereum also have unique industry classification criteria.”
The agency explained that the proposed classification “will be used for administrative purposes for the development of related statistics and various government policies and support,” Zdnet clarified. This new classification of crypto-related entities for statistical purposes does not affect the regulations by the FSC.
On-Site Investigation of Crypto Exchanges
The government also announced last week that the Korea Communications Commission (KCC) has launched an on-site investigation of major cryptocurrency exchanges. This is in collaboration with the Korea Internet Promotion Agency (KISA) following the hacks of multiple crypto exchanges. The announcement states:
The on-site inspection mainly focuses on the technical and administrative protection measures for personal information, such as access control to the personal information processing system, prevention of tampering with access logs, encryption of personal information, and prevention of malicious programs.
Bank of Korea’s Crypto Report
The Bank of Korea (BOK) released its big report on “crypto assets and central banks” on Friday, July 6, according to local media. This report examines domestic and international discussions on the economic and legal nature of crypto assets, as well as key issues related to the central bank.
Korean banks held crypto-assets totaling 2 trillion won (US$1.79 billion) as of December last year, equivalent to about 8 percent of the total deposits by the country’s brokerage houses, the central bank described.
According to BOK, “The amount of crypto-asset investment is not really big, compared with other equity markets, and local financial institutions’ exposure to possible risks of digital assets is insignificant,” Yonhap conveyed.
“Cryptographic assets are highly volatile, and transaction costs such as fees and processing time are high, making it difficult to function as currency,” Real News Korea quoted the report which also states:
It is not easy [for cryptocurrency] to have broad acceptance in the short term and [it] is less competitive than traditional means of payment such as cash or credit cards. In other words, it is difficult to become a medium of exchange.
While concluding that “it is difficult” to use cryptocurrency as money, Business Post quoted the central bank describing, “It is likely [for cryptocurrency] to be used as a means of payment in limited areas such as overseas remittances.”
Furthermore, the central bank divulged in its report:
If the technical problems of virtual currency are resolved and the acceptability of virtual currency in the general society is increased, it cannot be ruled out that it can be widely used as an investment asset and payment means.
