The five major standards for prohibiting virtual asset operators from handling anonymous coins and publishing real-name accounts in banks for virtual asset operators. What else is stipulated in the implementation regulations of the South Korean Special Gold Law?
Written by: Zhang Gaijuan
Today, South Korea issued regulations for the implementation of the Special Financial Law and will carry out a 40-day legislative announcement to accept public comments. So, what are the adjustments to the implementation regulations of the latest Special Finance Law compared with the March amendment? What is the impact on exchanges and banks? Lianwen has circled all the key information worthy of attention for you.
The amendment to the “Law on the Reporting and Utilization of Information on Specific Financial Transactions” (Special Financial Law) issued in March defines virtual assets and virtual asset operators, and stipulates that virtual asset operators must be financially affiliated with the Korea Financial Services Commission. The Institute of Information Analysis (FIU) makes declarations and registers real-name accounts with financial institutions to assume anti-money laundering obligations.
Before understanding the impact of the Special Financial Law on exchanges and banks, we will first interpret the implementing regulations one by one.
Interpretation of the main points of the special gold law implementation regulations
Definition of virtual assets
The special gold law gives the economic value of virtual assets and defines them as electronic documents that can be transferred electronically. At the same time, the virtual assets defined in the special gold law do not include the following types:
- It cannot be converted into currency, goods and services and its use is restricted by the issuer.
- Tangible or intangible objects obtained through games stipulated in the “Game Industry Law”;
- Prepaid electronic payment methods and electronic money;
- Shares registered electronically;
- Electronic bill
- Electronic bill of lading;
- Others are not classified as virtual assets according to the form and characteristics of the transaction as stipulated by the implementing regulations.
The implementation regulations further exclude prepaid cards, electronic commodity bonds, and electronic bonds.
Definition and business scope of virtual asset operators
The virtual asset operators specified in the special gold law refer to operators engaged in the following businesses:
- Provide virtual asset trading, exchange and transfer services;
- Custody of virtual assets;
- Intermediaries or brokers that conduct virtual asset purchases and exchanges;
- Implement other actions stipulated in the regulations.
In the Implementing Regulations, the scope of restrictions on virtual asset operators in the amendments is not added or deleted, but the virtual asset operators that apply the special financial law are limited, including only virtual asset exchanges, virtual asset custodians, and virtual asset operators. Major operators such as asset wallet providers.
It is worth noting that the implementing regulations also noted that although anonymous currency (Dark Coin) for virtual assets such as the definition, but because it is difficult to identify the details of the transaction and it is easy to become a tool for money laundering, plans to ban virtual property operators to deal with such virtual assets. In other words, virtual asset operators will be prohibited from processing virtual assets that use privacy technology and cannot identify transaction details when transferring funds.
Real-name account registration standards
In the previous amendments to the Special Gold Law, in order to improve the transparency of virtual asset transactions, virtual asset operators need to open real-name accounts in financial institutions (currently only banks). The implementation regulations stipulate five detailed registration standards, namely:
- Customer deposits should be stored and managed separately from the company’s own funds;
- Need to obtain Information Protection Management System (ISMS) certification ;
- Companies that have been sentenced to criminal penalties higher than fines for less than five years or have been revoked for less than five years will not be accepted;
- Client transaction details should be managed separately;
- Financial companies should conduct risk assessments in accordance with their established anti-money laundering procedures and standards.
Of course, virtual asset operators that do not provide customer deposits because they do not provide exchange services between legal currency and virtual assets and do not need to open customer deposits are exceptions, which will be regulated by FIU. However, such virtual asset operators also need to declare to FIU and perform other anti-money laundering services. This means that the bank will directly determine the “destiny” of the exchange to a large extent.
Virtual asset operators disclose business
Turgeon law amendments to previous regulations, virtual assets operators should comply with the rules of transfer (Travel Rule), namely the implementation of disclosure of information services at the time of transfer of virtual assets.
The latest implementation regulations stipulate specific standards for virtual asset operators to disclose customer information. Considering that virtual asset operators need to build an information sharing system independently, the implementation regulations decided to postpone the implementation date of this rule by one year to March 25, 2022. In addition, the regulations stipulate that virtual asset operators need to disclose when transferring virtual assets worth more than US$1 million. In addition, this rule does not apply to transactions between individuals , and only applies to virtual asset operators transferring or accepting virtual assets.
Are different types of virtual asset transfers subject to supervision, mapping: Lianwen
Reporting obligations of virtual asset operators
The Financial Intelligence Analysis Institute will be responsible for the declaration of virtual asset operators. Regarding the materials and procedures required for the declaration, the FSC will later release the virtual asset operator declaration manual.
How does the special gold law affect exchanges and banks?
After the special gold law was released in March this year, it caused industry concerns about exchanges. Currently, only four exchanges and banks have verified real-name accounts, namely Bithumb, Upbit, Coinone and Korbit . The Korea Central Daily reported that if banks do not help other exchanges to open real-name accounts, or other exchanges are not qualified to open real-name accounts, these exchanges will not be able to continue operations.
In other words, the bank will directly determine the “survival destiny” of the exchange to a large extent. However, after the special gold law takes effect in March next year, the window period for application acceptance will not expire until September 2021, after which the regulatory authorities will conduct a three-month evaluation. In this way, virtual asset providers who currently do not have real-name accounts have enough time to prepare.
But at the same time, the behavior of the exchange will also affect the bank. An official of the Financial Intelligence Analysis Institute said that after the implementation of the Special Financial Law, if a virtual asset operator is exposed to illegal activities such as money laundering, the bank that transacts with it will also face a large fine. This shows the enforcement of the special gold law by the regulatory authorities.
On the other hand, Korean banking institutions are also exploring to enter the virtual currency field. South Korean local media MTN previously reported that Woori Bank and Shinhan Bank, two large commercial banks in South Korea, said that they are currently discussing the possibility of introducing cryptocurrency services in response to the passage of the Special Fund Law amendment. In addition, South Korea’s NH Agricultural Cooperative Bank also stated that it is currently cooperating with the blockchain research institute Hexlant to introduce cryptocurrency custody services.
Summary of Eight Questions and Eight Answers to the Implementation Regulations of the Special Gold Law
Question 1. Does the implementation of the amendment to the Special Finance Law mean the institutionalization of virtual assets?
The amendment was formulated based on the recommendations provided by the Anti-Money Laundering Financial Action Task Force, imposing anti-money laundering obligations for virtual asset operators. If they need to perform duties such as reporting suspicious transactions, investor protection, and business supervision, they are not institutionalizing virtual assets. (Institutionalization).
Question 2: What kind of virtual asset operators need to fulfill their reporting obligations?
Virtual asset exchanges, custodians, wallet providers, etc. need to fulfill their reporting obligations.
Question 3. Why are financial companies required to conduct anti-money laundering assessments when opening real-name accounts for virtual asset operators?
This is not a new obligation to financial institutions. Financial companies should have assessed anti-money laundering risks in financial transactions.
Question 4. Why are the financial companies that open real-name accounts for virtual asset operators limited to banks?
At the beginning of the implementation of the special gold law, it will start with banks that have advantages in anti-money laundering work, and then may discuss the introduction of other financial companies.
Question 5: Which virtual asset operators do not need to open real-name accounts?
Virtual asset operators that do not provide virtual asset and legal currency exchange services do not need to open real-name accounts.
Question 6. Can virtual currency operators not involved in cash transactions be exempted by law?
If cash transactions are not involved, there is no need to open a real-name account, but it is still necessary to perform the declaration business, anti-money laundering business and obtain the information protection management system (ISMS) certification.
Question 7. Are you worried that the closure of undeclared virtual asset operators will cause losses to investors?
The South Korean government is also aware of such problems and will take measures to respond in advance, such as conducting parliamentary explanations, public propaganda, and industry meetings and exchange meetings.
Question 8. What is the future policy orientation of South Korea for virtual assets, blockchain and ICO?
Regarding virtual assets, in response to excessive speculation and illegal activities related to virtual assets, the regulatory authorities will coordinate and increase supervision. In terms of blockchain technology, South Korea will continue to support related research and development and personnel training. As for ICOs, South Korea will continue to maintain the previously issued ICO ban.
Virtual asset supervision, blockchain industry and central bank digital currency development parallel
In addition to the special financial laws, South Korea has successively promulgated a number of bills involving virtual assets, digital currencies or blockchain in the past year.
In July, the South Korean government stated in the proposed 2020 tax law amendment that it will include the income obtained through virtual assets such as virtual currency as other income , and will levy 20% on the annual digital currency income of more than 2.5 million won from October next year . Capital gains tax . Those who are required to pay capital gains tax on virtual assets need to declare in May each year.
Since then, South Korea’s Finance Minister Hong Nam-ki said that if the transaction details of encrypted assets can be fully grasped and systemized, they can be considered to be taxed as financial assets . Hong Nanji said, “At present, the scale of the cryptocurrency market exceeds 500 trillion won, but so far we have not been able to clarify revenue, nor can we tax this. The government has previously decided to use virtual currency and other virtual assets to obtain revenue. Include other income.”
In addition, South Korea has continuously made breakthroughs in the progress of the central bank’s digital currency. The Bank of Korea has completed the design/demand and technical review based on the central bank digital currency (CBDC) in July this year, and on this basis has advanced the second phase of the project “CBDC work process analysis and external consultation”, which is planned for next year Establish and test the central bank digital currency pilot system .
In terms of the blockchain industry, at the 16th Fourth Industrial Revolution Committee of South Korea held in June this year, the Ministry of Science, Technology, Information and Communication (MIST) issued a blockchain technology promotion strategy , deciding on online voting, donations, and social welfare. , Renewable energy, finance, real estate transactions, postal services and other seven areas to introduce blockchain technology.
On the other hand, many places in South Korea are also developing the blockchain industry. The South Korean government stated in the middle of this year that it plans to invest 100 billion won in the next five years to develop and develop the blockchain technology required for the transition to the digital economy, including consensus algorithms, smart contracts, and decentralized identity authentication (DID) And other core technologies. At present, the Korean government has passed a preliminary feasibility study for the project. In addition, Seoul City has previously decided to provide 5.67 billion won in research and development funds in blockchain and other fields in the second half of this year. Busan also plans to invest 6.51 billion won in 2021 to cultivate blockchain, AI and other related research and development talents.
