Cryptocurrency Regulation: Which Path Will South Korea Go?
The issue of the cryptocurrency market regulation is still open in South Korea. After examining the situation in the neighboring countries Japan and China, we can conclude that South Korea is somewhere in between. This is a paradox because the potential of one of the most powerful Asian economies is truly enormous! The cryptocurrency market of 2017 is the living proof of it. Back then Korean crypto exchanges had the best times, but something went wrong. Today we'll find out what efforts the Korean government made to set up a framework for cryptocurrency regulation.
The first actions aimed at cryptocurrency regulation were taken by Korean authorities in 2016. The local financial regulator the Financial Services Commission (FSC) created a governmental organization with the purpose to implement cryptocurrencies into the legal environment of the country. Those plans were due to the high popularity of cryptocurrencies among people. Looking ahead, it’s worth noting that the popularity keeps growing. According to a spring 2018 survey, more than 20% of South Korean millennials hold crypto assets.
Naturally, the financial regulator could not neglect the rapid development of the crypto sphere and just let it go. It took the government almost three years to significantly change its attitude toward cryptocurrencies. The current vector of the governmental influence is clearly positive, but it was not always this way.
Learning By Trial And Error
The initiative group included representatives of the FSC, the Bank of Korea, the Ministry of Finance and the FSS — Financial Supervision Services. However, the process of forming a regulatory policy was not accelerated. The first significant decision was the ban of ICO-campaigns in South Korea. This happened in September 2017 and was reasoned as a way to protect investors' funds and to fight against fraud.
September 2017 was the best time for South Korean exchanges. The Chinese government decided to ban cryptocurrency trading in the country and gave crypto exchanges two weeks to complete their activity. Thus, many platforms rushed to the neighboring country — South Korea. Till the end of the year, local marketplaces were at the peak of success, which was particularly noticeable amid a big leap in Bitcoin price. We all remember that BTC price reached its historical maximum in December 2017.
Bitcoin decline might not have been so rapid if Park Sang-ki, the Korean Minister of Justice, had not announced his intention to ban cryptocurrencies on December 28. Needless to say, a high probability that South Korea would follow in China’s footsteps instantly affected BTC rate, and two days later, it fell by almost 11%.
Denial from the government came quickly. The total ban was an initiative of the Ministry of Justice, but the presidential administration didn't support that radical suggestion. Nevertheless, January 2018 can be considered as a starting point for solving the issue of the cryptocurrency regulation.
A New Chapter In Regulation
The main point of the cryptocurrency market regulation in South Korea is the prohibition of anonymous trading introduced in January 2018. Such a decision gets along with the global practice: more and more countries make it imperative to go through AML-KYC procedures.
During the year, the Korean exchanges were subject to financial audits. It is noteworthy that the probes were performed at the initiative of the exchanges, on behalf of the Korean Blockchain Association (KBA). The association includes 14 largest cryptocurrency platforms in South Korea. The KBA is a self-regulating organization, though, the Korean government didn't transfer regulative rights to it, unlike the Japanese ones. In addition to financial audits, the KBA released a set of rules for exchanges aimed at enhancing security measures.
It is still too early to judge the cryptocurrency market regulation in South Korea. Neither digital assets nor crypto exchanges have obtained a clear status yet. However, the decisions made by the government in 2018 demonstrate that the country is moving in a positive direction. That will be the subject of our next article.