Amid a series of reported break-ins cryptocurrency exchanges, the South Korean government decided to toughen regulation of the industry. Bill imposing new obligations on digital currency exchanges has already been introduced.
The decision of the Korean government
On 19 June the second-largest cryptocurrency exchange in the country Bithumb issued a statement about the burglary and theft of cryptocurrency in the amount of 3 billion won ($31 million). The incident occurred just 10 days after was attacked by another large Korean exchange Coinrail. Losses as a result of this break-in was about $ 40 million.
The Chairman of the main financial regulator in the country, the Commission for regulation of financial services (FSC), Choi Jon-ku (Choi Jong-ku) said:
“To remedy the situation, we need to make the system stable cryptocurrency transactions and to strengthen the protection of traders.”
He explained that with this purpose the National Assembly has been submitted for consideration a bill clarifying the Law on reporting and use of information about certain financial transactions.
Now cryptocurrency exchanges are for the Korean regulators in the so-called “blind zone”. Kitovani exchange recognised by the authorities as providers of communications services. While public institutions and financial bodies are not empowered to directly regulate the exchange of cryptocurrency and trafficking of digital assets. This will be corrected with the help of “reporting system”.
As reported by one of the local media:
“It will stop using exchanges virtual currency for money-laundering rules and optimizes relationships with commercial banks, for example, open virtual accounts”.
Clarifying the bill
In accordance with the new bill, cryptocurrency exchanges will be deemed “treatment of virtual currencies”, they will be imposed the obligation to prevent money laundering.
In case of approval of the bill by the National Assembly, the exchange of virtual currencies will be required to transmit data to the financial intelligence Unit (FIU). In case of suspected unlawful activities FSS and the FIU will check and investigate the activities of such companies.
The Director of the FIU Department of planning and cooperation sung soo-Yeon (Son Sung-eun) said:
“We can’t afford to centers of the virtual currency has turned into hotbeds of money laundering”.
The proposed bill also requires all financial companies “to store data on financial transactions and the information associated with the implementation of mandatory reporting for transactions information on major transactions, verify the identity of customers, and the like, for five years.”
Fines and penalties
For companies that do not comply with the rules of financial regulators, will impose sanctions, implying the “guidelines for dismissal of employees, suspension of financial operations, corrective orders” and the like.
Managing FIU Kim JI-Woong (Kim Ji-woong) gave an example of one of the disciplinary measures:
“The offender will have to pay a penalty of 30 million won ($27 077) if the operator of virtual currencies has not passed verification process customers or have not checked and not reported a suspicious transaction”.
Deputy Director of the division of the FIU for the adoption of countermeasures in dealing with cryptocurrency Hong sung-Ku (Hong Sung-ki) said that the bill “does not mean that the exchange of virtual currencies will be accepted by law and included in the system.”